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Afm Report

Ranjit general store was opened in 2008 in Gurgaon, Haryana, selling household products. It has annual turnover of 35-40 lakhs and profit margin of 16-17%. It employs 4 people for the shop and home deliveries. In 2020-21, the store had net sales of 71.38 lakhs and net profit of 3.61 lakhs. Current ratio and quick ratio indicate strong ability to meet short-term obligations. Inventory turnover is 5.86, showing quick inventory sales. Receivables turnover is 27.45, indicating quick customer payments collection. Cash conversion cycle is 71 days.

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Sarvagya Chaturvedi
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55 views4 pages

Afm Report

Ranjit general store was opened in 2008 in Gurgaon, Haryana, selling household products. It has annual turnover of 35-40 lakhs and profit margin of 16-17%. It employs 4 people for the shop and home deliveries. In 2020-21, the store had net sales of 71.38 lakhs and net profit of 3.61 lakhs. Current ratio and quick ratio indicate strong ability to meet short-term obligations. Inventory turnover is 5.86, showing quick inventory sales. Receivables turnover is 27.45, indicating quick customer payments collection. Cash conversion cycle is 71 days.

Uploaded by

Sarvagya Chaturvedi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Business 3 – (Ranjit General Store)

Ranjit general store was opened in 2008 by Mr Ranjit Aggrawal situated in


Sector 65,Gurgaon,Haryana. The annual turnover is about 35-40 lakhs and the
profit margin is about 16% - 17%. Ranjit general store sells all the household
and daily use products. Ranjit general store has given employment to 4 people.
Two for shop help and two for home deliveries. As well as a person who
maintains books of accounts and records all transactions works at part times
basis.

Books of Accounts: (Year 2020-21)


Trading and P&L A/c

Particulars Amount (INR)


Sales 71,38,600
Less: Cost of goods sold 61,48,700
Gross profit 9,89,900
Less: Operating expenses 2,45,760
Operating profit 7,44,140
Less: Interest 71,804
Less: Depreciation 1,90,583
Net profit before tax 4,81,753
Less: Income tax 1,20,535
Net profit after tax 3,61,218

Balance Sheet
Working Capital Management Analysis –

Particulars Amount (INR)


Current assets
Cash 10,38,000
Accounts receivable 2,60,000
Inventory 10,48,000
Total current assets 23,46,000
Non-current assets
Equipment 1,38,000
Building and land 5,90,000
Total non-current assets 7,28,000
Total assets 30,74,000
Current liabilities
Accounts payable 83,000
Income taxes payable 6,25,650
Total current liabilities 7,08,650
Non-current liabilities
Loans payable 4,15,000
Total non-current liabilities 4,15,000
Total liabilities 11,23,650
Equity
Total equity 5,89,000
Total liabilities and equity 17,12,650

1. Current Ratio:
Current Ratio = (Total current assets) / (Total current liabilities)
Current Ratio = (23,46,000) / (7,08,650) = 3.31
A current ratio of 3.10 indicates that the company has a strong ability to meet
its short-term obligations, as it has more than 3 times the amount of current
assets than current liabilities.

2. Quick Ratio:
Quick Ratio = (Cash + Cash equivalents + Short-term investments +
Accounts receivable) / (Total current liabilities)
Quick Ratio = (10,38,000 + 2,60,000 / (7,08,650) = 1.83
A quick ratio of 1.83 indicates that the company can meet its short-term
obligations without relying on inventory, however, the ratio is lower than the
current ratio, indicating that the company is less liquid than the current ratio
would suggest.
3. Inventory turnover ratio:
Inventory turnover ratio = (Cost of goods sold) / (Average inventory)
Inventory turnover ratio = (61,48,700) / (10,48,000) = 5.86
An inventory turnover ratio of 5.86 indicates that the company is able to sell its
inventory quickly, which is a positive sign.

4. Receivables turnover ratio:


Receivable turnover ratio = (Net Sales) / (Average Accounts receivable)
Receivable turnover ratio = (71,38,600) / (2,60,000) = 27.45
A receivables turnover ratio of 27.45 indicates that the company is able to
collect payments from its customers quickly, which is a positive sign.

5. Cash Conversion Cycle (CCC):

CCC = (Average inventory period) + (Average collection period) -


(Average payment period)
a. Average inventory period = 365 days / Inventory turnover ratio
Average inventory period = 365 days / 5.86 = 62.28 days
b. Average collection period = 365 days / Receivable turnover ratio
Average collection period = 365 days / 27.45 = 13.29 days
c. Average payment period = 365 days / Payable turnover ratio
- Payable turnover ratio = (Cost of goods sold) / (Accounts payable)
Payable turnover ratio = (61,48,700) / (83000) = 74.08

Average payment period = 365 days / 74.08 = 4.92 days

CCC = 62.28 days + 13.29 days – 4.92 days = 71 days


A lower CCC means that a company is converting its investments in inventory
and receivables into cash more quickly, which is positive for the company's
liquidity. In this case, the company takes 71 days to convert its investments in
inventory and receivables into cash.

6. Operating Cycle:
Operating Cycle = (Average inventory period) + (Average collection
period)
Operating Cycle = 62.28 days + 13.29 days = 75.57 days
A lower operating cycle indicates that a company is able to convert its
investments in inventory into cash more quickly, which is positive for the
company's liquidity. In this case, the company takes 75.57 days to convert its
investments in inventory into cash.

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