# Ratios

Revision Notes About 4 Business Studies ratios: ROCE, Acid Test Ratio, Working Capital, Profit Margin

HideShow resource information
• Created by: dansydes
• Created on: 13-12-11 16:09

## ROCE

ROCE: Return on Capital Employed

(100 x Net Profit) / Capital Employed

Net Profit= \$25,000

Capital= \$55,000

ROCE= (100 x 25,000) / \$55,000

= 45%

Used to compare money spent to net profit made.

1 of 4

## Acid Test Ration

To check whether a business has enough working capital.

This liquidity ratio doesn't include stock.

Acid Test Ratio= (Debtors + Cash) : Current Liabilities

= (50+10) :  30

= 60:30

= 2 : 1

For every \$1 of liabilities the business has, it has \$2 of assets that can be turned into cash.

2 of 4

## Profit Margin

Gross Profit Margin= gross profit / sales

Net Profit Margin= net profit / sales

G.P.M= \$100,000 sales, \$50,000 gross

G.P.M= \$50,000 / \$100,000 = 0.5

=\$0.5 per \$1 sales

N.P.M= \$100,000 sales, \$40,000 net

N.P.M= \$40,000 / \$100,000 = 0.4

=\$0.4 per \$1 sales

3 of 4

## Working Capital

Working Capital= current assets:current liabilities

Working capital= 10,000 current assets : 5,000 current liabilities

Working Capital= 2:1

This means, the business has \$1 of liabilities for every \$2 of assets

4 of 4