PART II : FINANCIAL MANAGEMENT 1. Answer the following ...

Average inventory
(Endinginventory
�Beginninginventory)
�
2
(Rs. 8,338 �Rs.
6,725)
�
2
= Rs. 7,532.
(iv) A related measure is the number of days’ sales in inventory.
Average inventory
Number of days' sales in inventory �
Cost of goods sold / 365
128
Rs. 7,532
�
Rs. 40,139 / 365
= 68.49 days.
(v) Fixed asset turnover measures the efficiency with which the firm uses its fixed
assets.
Sales Rs. 58,247
Fixed asset turnover �
� �3.58
times
Average net fixed assets Rs. 16,272
Average fixed assets
(Ending fixed assets �Beginning
fixed assets)
�
2
(Rs. 17,168 �Rs.
15,375)
�
2
= Rs. 16,272.
(vi) Total asset turnover measures the efficiency with which the firm uses its total
assets.
Sales Rs. 58,247
Total asset turnover �
� �2.07
times
Average total assets Rs. 28,203
(c) Liquidity Ratios
Liquidity ratios measure the firm’s ability to meet its short-term obligations as they
come due.
(i) The current ratio is the most common measure of short-term liquidity. It is
sometimes referred to as the working capital ratio because net working capital is
the difference between current assets and current liabilities.
Current assets Rs. 11,917
Current ratio �
� �1.48
Current liabilities
Rs. 8,035
Where,