Profitability Ratios Flashcards
Gross Profit Margin =
Gross Profit
—————— x 100
Revenue
Mark-up =
Gross Profit
—————— x 100
Cost of sales
Profit in relation to revenue =
Profit for the year (before tax)
——————————————- x 100
Revenue
Return on capital employed (LLC) =
Profit from operations
——————————— x 100
Capital employed
Return on capital employed (sole trader) =
Profit before interest
——————————- x 100
Capital employed
Capital employed (LLC) =
Total equity + non-current liabilities
Capital employed (sole trader) =
Capital + non-current liabilities
How to increase GPM
Higher sell price without cost of sales increase
Lower purchase price without sell price decreasing
More efficient use of inventory, less waste damage/theft
How to increase mark-up
Higher sell price without cost of sales increase
Lower purchase price without sell price decreasing
More efficient use of inventory, less waste damage/theft
how to increase profit in relation to revenue
Higher sales revenue without a larger increase in costs
HighGPM without larger increase in expenses
Lower expenses without decrease sales rev or GPM
How to increase ROCE
Higher sales revenue without a larger increase in costs
HighGPM without larger increase in expenses
Lower expenses without decrease sales rev or GPM
How to increase current ratio
Additional long-term borrowing (loan)
Sale of unwanted non-current assets
How to increase liquid capital ratio?
Reduce inventory held, by reducing sell price of old inv
Added long-term borrowing (loan)
Sale of unwanted non-current assets
How to increase capital gearing? (over 50 % = high level)
Additional share capital and share premium.
Increased retained earnings
Increased revaluation reserve
Sale of unwanted assets to repay non-current liabilities.
