Accounting ratio equations

Question 1

gross profit margin

Answer 1

(gross profit / revenue) x 100

Question 2

mark up

Answer 2

(gross profit / cost of sales) x 100

Question 3

profit in relation to revenue

Answer 3

(profit for year (before tax) / revenue) x 100

Question 4

return on capital employed (limited company)

Answer 4

(profit from operations / capital employed) x 100

Question 5

capital employed (limited company)

Answer 5

total equity + non-current liabilities

Question 6

return on capital employed (sole trader)

Answer 6

(profit before interest / capital employed) x 100

Question 7

capital employed (sole trader)

Answer 7

capital + non-current liabilities

Question 8

current ratio

Answer 8

current assets / current liabilities

Question 9

liquid capital ratio

Answer 9

(current assets - inventory) / current liabilities

Question 10

capital gearing

Answer 10

(non-current liabilities / capital employed) x 100

Question 11

total equity

Answer 11

issued share capital + capital reserves + retained earnings

Question 12

expenses in relation to revenue

Answer 12

(expenses / revenue) x 100

Question 13

inventory turnover (times)

Answer 13

cost of sales / average inventory

Question 14

inventory turnover (days)

Answer 14

(average inventory / cost of sales) x 365

Question 15

average inventory

Answer 15

(opening inventory + closing inventory) / 2

Question 16

trade receivable days

Answer 16

(trade receivables / credit sales) x 365

Question 17

trade payables days

Answer 17

(trade payables / credit purchases) x 365