Profitability

• Gross Profit ratio

o Gross Profit/Sales x 100
• Net Profit Ratio
o Net Profit/Sales x 100
• Return on capital Employed
o Net Profit/Capital Employed x 100

Liquidity

• Current ratio (sometimes called working capital ratio)

o Current assets/current liabilities
• Liquid ratio (sometimes called the acid test ratio)
o Current assets excluding stock/Current liabilities

Activity

• Stock Turnover ratio

o Costs of goods sold/average stock
• Debtor Collection Ratio
o Debtors/Credit sales over the period x 52 weeks
• Creditor payment ratio
o Creditors/Credit purchase over period x 52 weeks

As a general guide, expenses can be classified as follows:

1. Purchasing Expenses such as Carriage Inwards, Duties on goods bought;

2. Selling and Distributing Expenses such as Carriage Outwards, Advertising;
3. General and Administrative Expenses such as Salaries, Rent; and
4. Financial Expenses such as Interest, Discount.
Summary

Ratios for Interpretation and Analysis of Final Accounts and the Balance Sheet