Ratios

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

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  • 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.

 

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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.

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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

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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

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