Ratios Formula

Question 1

Profitability ratios

Gross profit margin

Answer 1

Gross profit
—————. X100
Revenue (sales)

Question 2

Profitability ratios

Markup

Answer 2

Gross profit
—————— x100
Cost of sales

Question 3

Profitability ratios

Net profit margin

Answer 3

Net profit
————- x100
Revenue

Question 4

Profitability ratios

Return on capital employed ROCE

Answer 4

Net profit before interest and tax
———————————————x100
Capital employed

Question 5

Liquidity ratios

Current ratio

Answer 5

Current assets
——————-
Current liabilities

Question 6

Liquidity ratios

Acid test (liquid capital / quick ratio

Answer 6

Current assets - inventory
———————————————-
Current liabilities

Question 7

Efficiency ratios

Trade receivable days

Answer 7

Trade receivable days
—————————- x365
Credit sales

If credit sales are unknown use

Trade receivables
————————-x365
Sales revenue

Question 8

Efficiency ratios

Trade payable days

Answer 8

Trade payables
———————x365
Credit purchases

If credit purchases are unkown you can use

Trade payables
——————- x365
Purchases

Question 9

Efficiency ratios

Inventory turnover

Answer 9

Average inventory
—————————x365
Cost of sales

Average inventory is :
Opening inventory +closing inventory
—————————————————
2