Profitbility Ratio’s Flashcards
What is the Gross Profit Percentage
Gross Profit Percentage = Gross Proft/Sales Revenue x 100
What is the Net Profit Percentage ratio
Net Profit Percentage = Profit for the year/Sales Revenue x 100
What is the expense/revenue percentage ratio?
Specified Expense/Sales Revenue x 100
What is the Return on Capital employed ratio
Profit for the year/ Total capital (equity) + Non current liabilities x 100
If gross profit increases from one year to the next, what two factors have affected this?
COGS has decreased or Sales price per unit has increase
Name 2 limitations of profitability ratios
Financial statements are based on historical information meaning they may be several months out of date.
Businesses can window dress to improve the appearance of the SFP by classifying loans as current liabilities rather than non current liabilities to avoid including loans in the return on capital employed calculation
How to work out Net profit
Gross profit + income - expenses
If next profit percentage decreases from one year to next, what does this tell us about expenses?
Expenses has gone up, or gross profit has decreased
If expenses/sales revenue decreases what could this indicate?
Revenue has increased
why would net profit increase?
Expenses decrease, being kept under control
How to work out gross profit?
gross profit = Sales revenue - Cogs
Are the sales figures involved in the ratios VAT excl or VAT incl
VAT excluded
If a busines reduces its selling prices whilst maintaining the quality of its products how does this effect both return on capital employed and cost of sales/revenue percentage
Retrun on capital employed - decrease
Cost of sales/revenue percentage - increase
