Ratios

Question 1

GROSS PROFIT MARGIN %

Answer 1

GROSS PROFIT / SALES REVENUE

X 100

Question 2

MARK-UP %

Answer 2

GROSS PROFIT/COST OF SALES

X 100

Question 3

NET PROFIT MARGIN %

Answer 3

NET PROFIT/SALES REVENUE

X 100

Question 4

RETURN ON CAPITAL EMPLOYED (ROCE) %

Answer 4

NET PROFIT BEFORE INTEREST AND TAX/CAPITAL EMPLOYED

X 100

Question 5

CURRENT RATIO

Answer 5

CURRENT ASSETS/CURRENT LIABILITIES

Question 6

ACID TEST OR LIQUID CAPITAL RATIO

Answer 6

CURRENT ASSETS - INVENTORY/ CURRENT LIABILITIES

Question 7

TRADE RECEIVABLES

Answer 7

TRADE RECEIVABLE / CREDIT SALES

X 365

Question 8

TRADE PAYABLES

Answer 8

TRADE PAYABLES / CREDIT PURCHASES

X 365

Question 9

INVENTORY TURNOVER

Answer 9

AVERAGE INVENTORY / COST OF SALES

X 365

Question 10

ADS AND DISADS OF RATIOS

Answer 10

ADS
1) Allows comparison of companies
2) Allows comparison of business performance over time
3) Identifies the Financial strengths and weaknesses of the business
DISADS
1) Ratios look at the past, not the future
2) Financial information can be manipulated
3) Comparable information is not always available