Profitability And Liquidity Flashcards
Profitability
Ability to turn revenue into profit
Liquidity
The ability of a business to pay its debts
A positive liquidity will be….
Solvent
Negative liquidity will be…..
Insolvent
To liquidise assets means to…..
Sell them for cash
Difference between cash and profit ?
Cash is the money a business has at any moment in time (cash in till, bank) used to pay for day to day costs and profit is the difference between the amounts of turnover a business has made and all the costs has had to soy measured over a period of time
Gross profit margin definition
What % of sales revenue was converted into gross profit
Net profit margin
What % of sales revenue was converted into net profit
Gross profit margin (%) =
Gross profit/sales revenue X100
Net profit margin (%) =
Net profit /sales revenue X100
To improve gross profit
Increase turnover by increasing sales or price
To improve net profit
Increase turnover or decrease expenses (wages, marketing costs)
Liquidity ratio are presented…
as a ratio (eg: 2:1)
Current ratio shows the…
No. Of current assets against the current liabilities
Why is stock (inventory)removed from the liquid capital ratio ?
Because a business may not be able to turn it into cash quickly
