finance exam - profitability ratios

Question 1

what is the three different types of profitability ratios

Answer 1

1) gross profit ratio
2) net profit ratio
3) return on equity ratio

Question 2

what is the gross profit ratio?

Answer 2

gross profit/sales

Question 3

calculate the gross profit ratio of 2018

Answer 3

38.3% (38c)

Question 4

comment on the gross profit ratio of the business in 2018

Answer 4

for every $1 in sales revenue, there was 61.66 C absorbed by COGS & 38.34 became gross profit

Question 5

calculate the gross profit ratio of 2019

Answer 5

37.82% (38c)

Question 6

comment on the gross profit ratio of the business in 2019

Answer 6

for every $1 in sales revenuem there was 62.18c absorbed by COGS & 37.82c became gross profit

Question 7

the higher the Gross profit ratio is…

Answer 7

the more likely a business is to be profitable

high ratio means COGS is low relative to sales that’ll bring upon profitability

Question 8

what is gross profit

Answer 8

gross profit, the amount of money left after subtracting the COGS from the total sales revenue. This is the profit a company makes before accounting for other expenses like operating costs, taxes, and interest.

Question 9

what are COGS

Answer 9

expenses

Question 10

what is the comparative ratio? of the GR

Answer 10

52 cents difference went up (increased)
-good thing- business is more profitable

Question 11

what does a low/decling ratio situation show in the gross profit ratio

Answer 11

it shows that a business needs to obtsin stock at a lower price and to raise prices on their products. increasing the level of sales can also componsate for lower profit margins

Question 12

what is the net profit ratio

Answer 12

net profit/sales x 100

Question 13

what is the net profit ratio for 2018?

Answer 13

22.4%

Question 14

comment on the net profit ratio of 2018

Answer 14

of every $1 of sales revenue, 22.4c became net profit

Question 15

what is the net profit ratio of 2019

Answer 15

21.2%

Question 16

comment on net profit ratio of 2019

Answer 16

for every $1 in sales revenue, there is 21.2c becames profit

Question 17

provide a comparative analysis

Answer 17

it decreased by 1.2 c
- a bad thing ss higher figurers aree better

Question 18

why should net profit be higher?

Answer 18

it measures the % each dollar of sales that is left after all expenses are paid (profit)

Question 19

strats to increase the net profit ratio

Answer 19

-reducing expenses
-increase volume of sales

Question 20

what is the return on equity ratio

Answer 20

How effective funds contributed by the owners have been at generating profits
* The return on their investment
* The higher the ratio, the greater the return on an owner’s investment

Question 21

what is the return on equity ratio and coment on it for 2018

Answer 21

for every $1 contributed, the owner receives 55.6C in return

Question 22

what is the return on equity ratio and coment on it for 2019

Answer 22

61%

for every $1 contributed, the owner receives 61c in return

Question 23

why is this ratio important to maintain

Answer 23

• The ratio is an indication to potential shareholders if it they will receive a return on their investment. A high return on equity, means that people are more likely to invest in a business.