- Profit and loss accounts

-Profitability ratios

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  • Created by: macarena
  • Created on: 29-04-09 19:08

Profitability Ratios

GP MARGIN=Gp : turnover x 100

*for every one pound of sales the business makes (x) of Gp.

NP MARGIN=Np : turnover x 100

*for every one pound of sales the business makes (x) of Np.

ROCE= Np : Capital employed x 100

*for every one pound of sales the shareholders make (x) of Np.

*Turnover=Sales revenue

*Capital empleyed= share capital+reteined profit+reserves

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Profit and Loss Accounts

GROSS PROFIT= sales revenue-cost of sales

*cost of sales=openingstock-closingstock+directcosts

NET PROFIT= gross profit+other income-expenses

*other expenses=(undirect costs, fixed costsand overheads)

(rent, advertising, other wages payed by the business)

RETAINED PRFIT=net profit-taxes-dividends

*taxes=(corporation tax)

*dividends=(profits paid to the shareholders)

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Balance Sheet

- This is what the business ows and owns. Includes assetas and liabilities.

NET ASSETS=total assets-long term liabilities

*long term liabilities= what the business ows in a year

TOTAL ASSETS=net current assets+fixed assets

*fixed assets=lands, buildings, electricity..

NET CURRENT ASSETS=current assets-current liabilities

*current=(short term) less than one year

*current assets=Stock, Debtos and Cash

*current liabilities=everithing the business owes in a year (short term)

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Liquidity Ratios

CURRENT RATIO=Current assets : Current liabilities

*The ability to pay short term debths. A result less than 1.5 would mean that the business would have cash flow problems.

ACID TEST=(Current assets-stocks) : current liabilities

*The ratio should be arround 1. less than 1 would mean that the business could not pay the short term debths from current assets.

STOCK TURN OVER=Cost of sales : stocks

*Measures how many times ina a finantial year the business is able to stock into sales.

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