profitability ratios Flashcards
gross profit margin
Gross Profit ÷ Revenue x 100
mark up
Gross Profit÷ Cost of sales x 100
profit in relation to revenue
Profit for the year before tax ÷ Revenue x 100
Return on capital employed
Operating profit ÷ Capital employed x 100
Operating profit
Operating profit may be described as or ‘Profit from Operations’.
For a sole trader, this will be the ‘Profit for the year’
Capital employed for a limited company
‘Total equity’ + ‘Non-current liabilities’.
Capital employed for a sole trader
‘Capital’ + ‘Non-current liabilities’.
The figure for ‘Capital’ can either be the opening capital or the closing capital
current ratio
Current Assets ÷ Current Liabilities
Liquid capital ratio
Current Assets except inventory ÷ Current liabilities
capital gearing
Non-current liabilities ÷ Capital employed x 100
non capital liabilities
long-term bank loans, mortgages and debentures.
expenses in relation to revenue
Expenses ÷ Revenue x 100
inventory turnover (times)
how many times a business “gets through” its average inventory during the year
= Cost of Sales ÷ Average Inventory
inventory turnover (days)
= how many days, on average, inventory is held before being sold
= Average Inventory ÷ Cost of sales x 365
Average inventory
(Opening inventory + Closing inventory) ÷ 2
