XYZ Ltd has a capital turnover ratio of 2 times and its operating profit before tax is Rs.6,30,000. If its Return on Capital Employed is 30%, then the sales of XYZ Ltd are:
Rs. 42,00,000
Correct AnswerRs. 21,00,000
Incorrect AnswerRs. 36,00,000
Incorrect AnswerRs. 38,00,000
Incorrect AnswerExplanation:
- Let's define the terms:
- Capital Turnover Ratio: This tells how efficiently a company uses its capital to generate sales. Here, it's 2 times.
- Operating Profit Before Tax: Given as Rs. 6,30,000.
- Return on Capital Employed (ROCE): Measures a company's profitability. Given as 30%.
- To find the sales:
- If ROCE is 30% of Capital Employed, then the Operating Profit (Rs. 6,30,000) is 30% of Capital Employed.
- Thus, Capital Employed = Rs. 6,30,000 / 0.30 = Rs. 21,00,000.
- Sales = Capital Turnover Ratio × Capital Employed = 2 × Rs. 21,00,000 = Rs. 42,00,000.
- Correct Answer: Option 1 - Rs. 42,00,000
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By: Rohit Middha