Profitability Ratios Flashcards
What is the gross profit margin formula
Margin % = (gross profit / sales revenue) x 100
What does the answer from the gross profit margin formula show
The % of the £ earned that isn’t in the cost to produce the product
What is the net profit margin formula
(Net profit before tax / sales revenue) x 100
Define return of capital employed (ROCE)
Tells us what returns the business has made on the current resources available to it
How do you work out ROCE
(Operating profit / capital employed) x 100
What are the sections of capital employed
Share capital + retained earnings + LT borrowing
How do you work out the return of equity
Yearly profit / shareholder equity
What does the return of equity calculation show you
How much profit is made per pound of shares
What are the names of the 4 efficiency ratios you need to know
- Gross profit margin % formula
- Net profit margin % formula
- Return of equity
- Return on capital employed (ROCE)
What formula is - (gross profit / sales revenue) x 100
Gross profit margin formula %
What calculation is 0 (net profit before tax / sales revenue) x 100
Net profit margin %
What equation is - yearly profit / shareholder equity
Return on equity
