ratios Flashcards
gross profit percentage ratio
This calculates the percentage of profit made from the buying and selling of goods before all other expenses are deducted.
gross profit and gross profit ratio formula
The gross profit is calculated by sales minus cost of sales .
The Gross Profit ratio is (Gross Profit/Sales Revenue) × 100.
profit for the year ratio definition
This calculates the percentage of overall (net) profit made from after all other expenses are deducted.
net profit and net profit ratio formula
The net profit is calculated by sales minus cost of sales and operating expenses
The Net Profit ratio is (Profit for the Year/Sales Revenue) × 100
return on equity employed
Return on equity employed calculates how much money an investor will get back after a period of time.
return on equity employed formula
The ROE is (Profit for the Year/Opening Equity) × 100
to improve GPP
- increase prices
- decrease cost of sales
- find a cheaper supplier
to improve NPR
- increase gross profit
- increase sales
- reduce expenses
to improve ROE
- increase sales
- reduce expenses
current ratio
Current ratio is a measure of a firm’s liquidity – ie, its ability to pay short-term debts.
Current ratio formula
current ratio = current assets divided by current liabilities
A 2:1 current ratio is generally accepted as being healthy.
acid test ratio
The Acid Test ratio is a measure of the firm’s ability to pay its expenses, continue trading and avoid liquidation.
acid test ratio formula
acid test = current assets (less closing inventory) divided by current liabilities
to improve current ratio
- increase current assets
- selling non-current assets
- decreasing current liabilities
to improve acid test ratio
- increase current assets
- reduce inventory levels
- sell non current assets
- decrease current liabilities
