A company earns Gross Profit of 25% on cost

122 :- A company earns Gross Profit of 25% on cost. For the year ended 31st March, 2017 its Gross Profit was Rs 5,00,000. Equity Share Capital of the company was Rs 10,00,000; Reserves and Surplus Rs 2,00,000; Long term Loan Rs 3,00,000 and Non – current Assets were Rs 10,00,000.
Compute the ‘Working Capital Turnover Ratio’ of the company.

Solution :-

Gross Profit = 25% on Cost of Goods Sold
5,00,000 = 25/100 x Cost of Goods Sold
Cost of Goods Sold = 5,00,000 x 100/25
= Rs 20,00,000

Net Revenue from Operations = Cost of Goods Sold + Gross Profit
= 20,00,000 + 5,00,000
= Rs 25,00,000

Equity Share Capital + Reserves and Surplus + Long term Loans = Non – Current Assets + Current Assets
10,00,000 + 2,00,000 + 3,00,000 + Current Liabilities = 10,00,000 + Current Assets
Current Liabilities – Current Assets = 10,00,000 + 2,00,000 + 3,00,000 – 10,00,000
Working Capital = Rs 5,00,000

Working Capital Turnover Ratio = Net Revenue from Operation/Working Capital
= 25,00,000/5,00,000
= 5 Times