## From the following information, calculate Inventory Turnover Ratio; Operating Ratio and Working Capital Turnover Ratio: Opening Inventory Rs. 28,000; Closing Inventory Rs. 22,000; Purchases Rs. 46,000; Revenue from Operations, i.e., Net Sales Rs. 80,000; Return Rs. 10,000; Carriage Inwards Rs. 4,000; Office Expenses Rs. 4,000; Selling and Distribution Expenses Rs. 2,000; Working Capital Rs. 40,000.

SOLUTION

(i) Opening Inventory = 28,000
Closing Inventory = 22,000
Average Inventory = (Opening Inventory + Closing Inventory) / 2
= (28,000 + 22,000) / 2
= Rs 25,000

Cost of Goods Sold = Opening Inventory + Purchases + Carriage Inwards – Closing Inventory
= 28,000 + 46,000 + 4,000 − 22,000
= 56,000

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
= 56,000 / 25,000
= 2.24 Times

(ii) Operating Expenses = Office Expenses + Selling and Distribution Expenses
= 4,000 + 2,000
= 6,000

Operating Cost = Cost of Goods Sold + Operating Expenses
= 56,000 + 6,000

= 62,000

Net Sales = Rs 80,000 × 100
Operating Ratio  = Operating Cost / Net Sales × 100
= 62,000 / 80,000 × 100
= 77.5%

(iii) Working Capital = 40,000
Working Capital Turnover Ratio = Net Sales / Working Capital
= 80,000 / 40,000
= 2 Times
*Note: Sales return will not be considered as amount of net sales is provided in the question.