Inventory turnover ratio = \(\frac { Credit\ revenue\ from\ operations }{ Average\ inventory } \)
Cost of revenue from operations = Opening inventory + Net Purchases + Direct expenses
(carriage inwards) - Closing inventory
= Rs.1,70,000 + Rs.6,90,000 + Rs.20,000 - Rs.1,30,000
= Rs.7,50,000
Average inventory = \(\frac { Opening\ inventory+Closing\ inventory }{ 2 } \)
= \(\frac { 1,70,000+1,30,000 }{ 2 } =\frac { 3,00,000 }{ 2 } \)
= Rs.1,50,000
∴ Inventory turnover ratio = \(\frac { 7,50,000 }{ 1,50,000 } \)  = 5 times
Inventory conversion period (in months) =  \(\frac { Number\ of\ months\ in\ a\ year }{ Inventory\ turnover\ ratio } \)
= \(\frac { 12 }{ 5 } \) = 2.4 months.

Capital gearing ratio = \(\frac { Funds\ bearing\ fixed\ interest\ and\ fixed\ dividend }{ Equity\ Shareholder's\ funds } \)
Funds bearing fixed = 5% Preference capital + 6% Debentures
interest or fixed dividend = Rs.1,00,000 + Rs.3,00,000
= Rs.4,00,000
Equity shareholder's funds = Equity share capital + General reserve + Surplus
= Rs.4,00,000 + Rs.2,50,000 + Rs.1,50,000
= Rs.8,00,000
Capital gearing ratio = \(\frac { 4,00,000 }{ 8,00,000 } \) = 0.5 : 1

Debit equity ratio = \(\frac { Long\ term\ debt }{ Shareholders\ funds } \ \)
Long term debt = Debentures
= Rs.6,00,000
Shareholder's funds = Equity share capital + Reserves and surplus
= Rs.6,00,000 + Rs.2,00,000 = Rs.8,00,000
∴ Debt equity ratio = \(\frac { 6,00,000 }{ 8,00,000 } \) = 0.75:1

Operating cost ratio = \(\cfrac { Operating\ cost }{ Revenue\ from\ operations } \times 100=\cfrac { 4,80,000 }{ 8,00,000 } \times 100=60\)%
Cost of revenue from operations = Purchases of stock-in-trade + Change in inventories of stock in trade + Direct expenses (wages)
= 4,50,000 + (40,000) + 10,000 = Rs.4,20,000
Operating expenses = Administrative expenses + Selling and distribution expenses+ Employee benefits expenses (salaries)
= 20,000 + 28,000 + 12,000 = Rs.60,000
Operating cost = Cost of revenue from operations + Operating expenses
= 4,20,000 + 60,000 = Rs.4,80,000
Tutorial Note
Loss on sale of fixed assets is a non-operating item, hence it is ignored.
(iii) Operating profit ratio
Operating profit ratio gives the proportion of operating profit to revenue from operations.
Operating profit ratio is an indicator of operational efficiency of an organisation. It may be computed as follows
Operating profit ratio = \(\cfrac { Operating\ profit }{ Revenue\ from\ operations } \times 100\)
Alternatively, it is calculated as under.
Operating profit ratio = 100 – Operating cost ratio
Operating profit = Revenue from operations – Operating cost
A higher ratio indicates better profitability. Greater the operating ratio, higher is the margin available for paying non-operating expenses
Tutorial note
Operating cost ratio + Operating profit ratio = 100%

Quick ratio = \(\frac { Quick\quad assets }{ Current\quad liabilities } \)
Quick assets = Current assets - Inventories - Prepaid expenses
= Rs.4,50,00 + Rs.70,000 - Rs.20,000
= Rs.3,60,000
Quick ratio = \(\frac { 3,60,000 }{ 2,40,000 } \) = 1:5:1