Ratio Analysis

Question 1

PROFITABILITY RATIO

gross profit margin

Answer 1

used to measure the % of profit earned on the trading activities of the organisation

Formula: gross profit/sales x100

Question 2

PROFITABILITY RATIO

profit mark-up

Answer 2

used to measure the % added to the cost of goods sold to calculate selling price

Formula: gross profit/cost of goods sold x100

Question 3

PROFITABILITY RATIO

Net Profit Margin

Answer 3

used to measure the overall profit of the firm after all expenses have been taken into account

Formula: (net profit/ sales) x100

Question 4

LIQUIDITY RATIOS

Current Ratio

Answer 4

used to measure whether the business has sufficient current assets to cover payment in full of current liabilities

Formula: (current assets/current liabilities):1

Question 5

LIQUIDITY RATIOS

Acid Test Ratio

Answer 5

used to measure of the company had sufficient liquid assets to cover current liabilities. asses if business is suffering from a cash flow problem

Formula: (current assets-stock/current liabilities):1

Question 6

EFFICIENCY RATIOS

Return on Capital Employed

Answer 6

used to measure the % return on the capital invested in the business

Formula: (net profit before interest and tax/capital employed) x100

Question 7

EFFICIENCY RATIOS

Rate of Stock Turnover

Answer 7

used to measure the times which stock turns over in the year. fast stock turnover increases delivery costs but reduces stock costs and stock deterioration

Formula: (cost of goods sold/average stock)