Profitability ratios

Explores all of the profitability ratios that are needed for A Level Business Edexcel. Ratios that we will be looking at:

Return on capital employed (ROCE)

Gross profit ratio

Net Profit ratio

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Return on capital employed (ROCE)

  • Measures the performance of a company.
  • Sometimes referred to as the primary ratio and compares the profit made by the size of the company. Meaning that it can get an accruite margin what ever the business.
  • The ROCE can very between businesses.
  • The formula for this is

                     Profit before tax and interest

         ROCE=--------------------------------------------     X100

                                Long term capital employed

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Gross Profit Margin

Gross profit margin shows the gross progfit made on sales turnover.


                 Gross profit

             -----------------------            X100.


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Net profit margin.

The net profit margins how the business controls it's overheads. If it smalls then it suggests that overheads are low. Though if it large it suggest overheads are high. The formula for this is

                                     Net profit before tax and intrest

Net profit margin=  ----------------------------------------------------


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