• ACCOUNTING RATIOS & INCOMPLETE RECORDS

• MARK-UP

• COST + PROFIT = SELLING PRICE

• When shown as a fraction or percentage of cost, the gross profit is known as the mark-up.

• MARGIN
• When shown as a fraction or percentage of selling price, gross profit is known as the
margin.
• calculate mark-up and margin using this example;

Cost Price + Gross Profit = Selling Price

£4 + £1 = £5
CALCULATING MISSING FIGURES

The following figures are for the year 2015:

Inventory 1.1.2015 400

Inventory 31.12.2015 600
Purchases 5,200

A uniform rate of mark-up of 20 per cent is applied.

Required: find the gross profit and the sales figures.

• EXAMPLE

Inventory 1.1.2016 500

Inventory 31.12.2016 800
Sales 6,400

A uniform rate of margin of 25 per cent is in use.

Required: find the gross profit and the figure for purchases.
BCOMMONLY USED ACCOUNTING RATIOS

Gross Profit Margin:

• This ratio is used as a test of the profitability of the sales. Just because sales revenue has
increased does not, of itself, mean that gross profit will increase.
Inventory Turnover
• If we always kept just £100 of inventory at cost which, when we sold it, would always sell for
£125, and we sold this amount eight times in a year, we would make 8 X £25 = £200 gross
profit.

• The quicker we sell our inventory (we could say the quicker we turn over our inventory) the
more the profit we will make, if our gross profit percentage stays the same.