Ratios. Current Ratio This shows how easily the business can pay its current liabilities out of its current assets. Current ratio = current assets Current.

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Presentation transcript:

Ratios

Current Ratio This shows how easily the business can pay its current liabilities out of its current assets. Current ratio = current assets Current liabilities A number between 1.5 and 2.0 is good.

Acid Ratio Test The same as above but stock is not included. Acid test ratio = current assets – stock Current liabilities A number between 0.8 and 1.0 is good.

Profitability Test This show how well the business is going, turning sales revenue into profit. Gross profit margin = gross profit x100% Sales

Return of Capital Employed This shows how efficiently the business is using its capital to make a profit. Return of capital employed = operating profit capital The higher the figure the better the capital is been put to work.