Ratio Analysis

Ratio Analysis is a series of financial evaluations that are undertaken in order to understand the financial strengths and weaknesses of the business

Profitability Ratios

1. Gross Profit Margin = Gross Profit/Sales x 100                                                       
2. Net Profit Margin = Net Profit/Sales x 100                                                                     
3. Return on Capital Employed = Net Profit/Capital Employed x 100                              
4. Gross Profit Mark Up = Gross Profit/Cost of Sales x 100                                            
5. Net Profit on Operating Expense = Net Profit/Expense x 100                                                                                

Liquidity Ratios

1. Current Ratio = Current Asset/Current Liability x 100                                                   
2. Acid Test Ratio = Current Asset - Closing Stock/Current Liability x 100                                                                         

Performance Ratios

1. Debtors Collection Period = Total Debtors/Total Credit Sales x 365
2. Creditors Payment Period = Total Creditors/Total Credit Purchase x 365                    
3. Rate of Stock Turnover = Cost of Sales/Average Stock
4. Gearing Ratio = Long Term Liability/Total Capital x 100