Name of Ratio Formulae Interpretation

1. Net profit Net Income/Profit For every $ of

margin Net sales sales made, how
aka net much net profit is
income as generated by the
a % of business after
sales deducting all
costs.

2. Gross Gross Profit For every $ of

Profit Net Sales sales made, how
Margin much Gross
aka G.P as Profit is earned
a % of after deducting
sales all direct costs of
production.
3. Return on Net Income/Profit X 100 Shows how much
Capital Capital Employed income is
Employed Where capital employed: generated by
( R O C E) Total Assets - Current employment of
Liabilities equity -
1:2:3.
4. Return Net Income/Profit Shows how much
Investmen Average Total Assets income is
t (ROI) Where Total assets: generated by the
aka Assets Opening asset + closing asset assets of the
Turnover 2 business.
Ratio
5. Current Current Assets Shows the
Ratio Current Liabilities business ability
to finance their
short- term
obligations.
6. Acid Test C. Assets- Stock-Prepayments A more stringent
Ratio Current Liabilities test of liquidity in
determining how
 quick the
business can pay
its short term
debts.
7. Working Current Assets – Current Shows the
Capital Liabilities relative cash flow
aka of the business
( Net after
Current extinguishing
Assets) short term
obligations.

Name of Ratio Formulae Interpretation

8. Inventory Cost of sales__ Shows an average;

Turnover aka Average Inventory how quickly
Ratio of inventory Is being
Turnover Where an Inventory sold.
= Opening + closing
stock
2

9. Average Net Cr Sales__ Shows an average,

collection Avg. Net A/c Rec. how long the firm
Period aka A/c Where an A/c Rec. = takes to collect its
Receivable opening + closing outstanding debts.
ratio 2
10.Average Net Cr Purchases Shows an average,
payment Period aka Avg. A/c Payable how long the firm
A/c payable Ratio Where A/c payable= takes to pay its
Opening + closing outstanding trade
A/c Payable debts.
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