Ratios

Question 1

What is Gross Profit Percentage

Answer 1

Shows how much of the sales is made up from gross profit
The higher the percentage figure the better

Question 2

What is Net Profit Percentage

Answer 2

Shows how much of the sales is made up from net profit
The higher the percentage figure the better

Question 3

WHat is an Inventory Turnover

Answer 3

How quickly inventory is being sold.
It shows the number of times in a year the business is able to sell its inventory
Rate varies between industries though firms will want it to be as high as possible

Question 4

What is Return on Capital Employed

Answer 4

Shows the return received on the money invested by the owner
The higher the percentage the better
Can be compared to bank interest rates or other forms investment

Question 5

What is a Working Capital Ratio

Answer 5

Shows how liquid a business is - measures ability to pay short term debts
Expressed as a figure against 1
Ideal is 2:1, in that a business should have twice as many current assets to current liabilities
Some businesses may operate as low as 1.5:1
A ratio in excess of 2:1 may indicate that the business is not using its resources efficiently

Question 6

How to calculate Inventory Turnover

Answer 6

Average Inventory