Naveen Rohatgi-9867451833 SYBMS- Management accounting
A ratio shows the relationship between two numbers.
shows the relationship betweentwo accounting figures.
is the process of computing and presenting the relationships between the items in the financial statement. It is an important tool of financial analysis, because it helpsto study the financial performance and position of a concern.
Classification of ratios based on function
show the relationship between the current assets and current liabilities of theconcern. Examples are Liquid ratio and Current ratio.2.
show the relationship between proprietor’s funds and debts used in financingthe assets of the concern. Examples are Capital gearing ratio, Debt-Equity ratio and Proprietary ratio.These are also known as
(also known as
) show the relationship between the sales and the assets. Examples are Stock turnover ratio, Debtors turnover ratio etc.4.
Profitability ratio show
the relationship between
Profits and sales
; for example, Operatingratio, gross profit ratio, Operating net profit ratio, Expenses ratios etc.; or
Profits and investments
; for example, Return Return on capital employed., Return on investments, Return on equity capital etc.5.
show the relationship between the profit on one hand and the claims of outsiders (dividend, interest etc.) to be paid out of such profits. Examples are Dividend payout ratio andDebt services ratio.
Profit and loss account Ratio:GROSS PROFIT RATIOMeaning
This ratio compares gross profit with net sales. It is usually expressed in the form of percentage.
FormulaGross profit = Gross Profit x 100Net SalesFunction/Purpose
Gross profit is a
, which shows the relationship between profits and sales. This ratiohelps to judge (i) how efficient the concern is in managing its production, purchase, selling and inventory;(ii) how good its control is over the direct costs; (iii) how productive the concern is; and (iv) how muchamount is left to meet other expenses and earn net profit.
The real opportunity for success lies within the person and not in the job .