Financial Ratios Interpretation :

1. Net Profit Ratio = net profit / net sales

JV only converted 10.06 percent of her
return on sales 213,910/2,125,950 sales into profits
Profit margin 0.100619 = 10.06%

2.Gross Profit rate = Gross profit /net sales
JV is currently achieving a 38.21% GP
on her clothes. This means that for
every peso of sales JV generates, she
earns 38 cents in profits before other
business expenses are paid.

812,350/2,125,950 It measures how efficiently a company uses

0.382112 = 38.21% its materials
it shows howandprofitable
labor to produce and sell
a product is.
3.Inventory turnover cost of goods sold/ ave.
= inventory
how effectively inventory is managed 
1,313,600/715,600 higher return the better
1.835662 times how liquid a company’s inventory is
how easily a company can turn its
inventory into cash.
Creditors are particularly interested in this because inventory is often pu

4. Inventory
days/days to sell
inventory =
365 days/ inventory turnover
360/1.84
JV will turn his inventory into cash in
195.6522 days the next 196 day
Shorter days inventory outstanding
means the company can convert its
inventory into cash sooner.

5. Accounts Net credit sales/ ave.

receivable turnover accounts receivable
JV collects his receivables about 5.6
= times a year
2,125,950/382,600
how many times a business can turn
its accounts receivable into cash
5.556587 times
during a period.
how many times a business can
collect its average accounts
receivable during the year.
higher ratio more favorable

6.Collection poeriod 360 days/ Receivables JV is collecting money from

= turnover
customers every 64 days.
360/5.6
if JV credit period is n/50 days..Collection of JV is not
good.
64.28571
 current assets/current
liabilities
Banks would prefer a current ratio of
7.Current ratio= at least 1 or 2, so that all the current
liabilities would be covered by the
current assets
2016 2017
1,283,000 1,027,000
400,455 347,580
3.203856 2.954715

320.39% 295.47%

8. Quick Ratio

9. Debt-to-equity ratio
10. Return on investments
11. Working capital