Financial Statement Analysis: Profitability & Liquidity

Question 1

State the formula for gross profit margin

Answer 1

(Gross Profit / Net Sales Revenue) X 100

Question 2

State the formula for profit margin

Answer 2

(Profit / Net Sales Revenue) X 100

Question 3

State the formula for mark-up on cost

Answer 3

(Gross Profit / Cost of Sales) X 100

Question 4

State the formula for percentage of expenses to net sales revenue

Answer 4

(Other Expenses / Net Sales Revenue) X 100

Question 5

State the formula for return on equity

Answer 5

(Profit / Average Equity) X 100

Question 6

How do you calculate average equity?

Answer 6

(Beginning equity + Ending Equity) / 2

Question 7

State the formula for working capital

Answer 7

Total current assets - Total current liabilities

Question 8

State the formula for the current ratio (working capital ratio)

Answer 8

Total current assets / Total current liabilities

Question 9

State the formula for the quick ratio (acid-test ratio)

Answer 9

(Total current assets - Inventory - Prepayments) / Total current liabilities

Question 10

State the formula for the inventory turnover rate

Answer 10

Cost of sales / Average inventory

Question 11

How do you calculate average inventory?

Answer 11

(Beginning Inventory + Ending Inventory) / 2