Arounting Patiosr

A ratio that expresses the relationship between one accounting resut and another, inte nded to proide a usetul comparisons

Liquldity Ratios: assesses the business' ability to cover its short-tem debt as they become due.

so knowm
Working Capital Ratio"
as

Current Ratio CurTentAssets Ratio expressed as the number of times

n Cover me current l i a b l t i e s
Current Llabilities

2.5:1 2.5 Current assets cover 1 Curent babwtyy

ExampieCurrent A$sets 12 300
Current Liabilities S5 000

Also known as "Acld Test Ratio"

Qulck Ratio enEASSets- Stock o expressed Bs n e n u m b e o
labilities
Current Labilltes quick

Example:Current Assets Stock 2 500-S2300 21 2 0 u c k Assets cover 1C. Liabi

Current Liabilities

X 12mths Expressed as the average no. of

Debtor: Sales Ratio DeDtoACC eceivable
"

n o n n s deDIDIs akE to pay

Annual Sales

Example: Debtors $3 600x 12mths 1.35 months Debtors take 1.35 months on average to
Sales $32000 pay Duswess amounts owed.

xpressed as the average no. o

Creditor: Purchases Ratlo Creditors/ Acc. Payable. x 12mths montns
me Dusinos ake

Example:_Creditors $2400 x 12mths 1.04 months The business takes 1.04 months o
urchases $27 700 aveage o pay creditovs amounts owed.

Measures the relationship beiween how much credit

a
Debtor
Debtor: Credior kato ranted by the busmess to custonEs ananow mucCe
Creditor e e v o u rom suppien..

debtor, the busineas owes $1 toa

CxampreDeptoS 0
1 1 f o r every 51.50 owed by a
Profitability Ratlos: assesses the business overall efficiency and performance during a specifc peniod.

Expressed as a s
x 1000
Gross Profit as a Percentage of Sales sTOE
t Sales

Example: Gross Profit x100$12 900x 100 40.3%% The business made a Gross proft of $0.40
Sales or every T of Sares.

x T00
Net Proftt as a
Percentage of Sales
EPOn
profits after cost of sales &expenses

Example: Net Profitx 100 $7 200 x 100 22.5% The business made a profit of S0.22 for every Sf
Ner S a e S32 U00 Sales ater deducting al costs & expenses

Cantal Emploved) ployed

Net Pro
Net Profit x 100 Exprossed as a
Capital Employed

This ratio measures the amount of returns a business receives from resources made avalable to them
from funds Supplied by owners. somebmes,Tunds 5 u p o e y r o s ( o g i E des de

There are different Formulas for Capital Employed. Most popular for cSEC:

Capital Employed =

Opening Capital Closing.capita

d S0.33 for every 51

apital Emp vet

Rate of Turnover or Stock turnover O Goods Sold xpressed as he no. of times per
AVeragetocK o or turmed over.

Rate of Turnover or Stock turmover uy Expressed as the averag

no. of
0 s t of Goods Sold
morntns or oy

Average Stock ORenina Stock CioingSiocs

145months
Example1:S19 100 B3 time Exomple22300 x12mths
Aecounting Ratios and ncomplete Pecords:

MARK UP AND MARCIN PROFITEXPRESSEDASA%OFPRICE)

UP: Profit expressed as a traction / percentage
MARK of CoST PRICE CoST OF GOODS SOLD
MARGIN: Proft expressed as a fraction / percentage of SELLING PRICE/ SALES REVENUE

FORMULAS
MARK UPE Proft expressed as a fraction /percentage of COST PRICE / COST OF GOODs sOLD

Mark up (4) GrossProfit X 100

Cost Price
Cost of Goods Sold

NE Saies= Cost af (Goods Sald- Mark up Proft

MARGIN: Proft expressed as a fraction /percentage of SELLING PRICE / SALES REVENUE

Margin () x 100
Gross Profit
elge
NE: Cost af Goods Sold = Sales -Margin Profit

USING MARKUP AND MARGIN IN INCOMPLETE RECORDS

o oprosued aa a fracton percentage af c o S T PRICE/COST OF G00DS SOLD

NB: If Mark up % is given and Cost of Goods Sold, Gross Profit and Sales can be calculate d as follows:

Gross Profit (5) =

Mark p (9) x Cost of Goods sod (3)
Sales (5) Cost of Goods Sold (5) Gross Profit (mark up)

Example Cost of Goods Sold=$5000 up20%

Solution Gross Proffs 20%5 x 55000= $1000

Therefors, Sales 5500 370030000

MARGIN: Proft expressed as a fraction /percentage of COST PRICE / COST OF GOODS SoLD

N6: Margin % is given and Sales Revenue, Gross Profit and Cost of Goods Sold can be calculated as follows:

Gross Profit B)* Margin f ) x Sales (5)

Cost of Goods Sold (5 = Sales (5) -

Gross Profit (margi)

Erample Sales S6400 Margin 25%

Solution Gross Proff * 25% x S0400 51000

Theretore Cos of Goods Sold= 56400 S1600- g4800

KELATONSEWEEN MARK-UP AND MARGIN (how to use one to find the other if necessary)

MARGIN
(fraction) Mark-up numera arup t-up denominator (fraction) Margin numerator-Margin denominator