1. This presentation will help me for revision of different ratios.
Ratio Revision
This presentation will help me for revision of different ratios.
Viraj Chokshi
Year 11 Ratios

2. Different types of ratios & their Formulas.
What I will cover:
Different types of ratios & their Formulas.
Viraj Chokshi
Year 11 Ratios

3. What does the Syllabus want us to know?
Viraj Chokshi Year 11 Ratios

4. Different types of Ratios
Gross Profit Ratio
Net Profit Ratio
ROCE ratios (Return On Capital Employed)
Current Ratio
Acid-test ratio
Overheads ratios
Gearing
Markup
Viraj Chokshi Year 11 Ratios

5. Viraj Chokshi Year 11 Ratios
Gross Profit Ratio
Gross profit ratio (GP ratio) is the ratio of gross profit to net sales expressed as a percentage. It expresses the relationship between gross profit and sales.
Gross Profit= Sales – Cost of goods sold
Gross Profit= Sales – [Opening Stock + Purchases – Closing Stock]
[Gross Profit Ratio = (Gross profit / Net sales) × 100]
Viraj Chokshi Year 11 Ratios

6. Viraj Chokshi Year 11 Ratios
Example
Total sales = $520,000; Sales returns = $ 20,000; Cost of goods sold $400,000
Required: Calculate gross profit ratio.
Gross profit = [(520,000 – 20,000) – 400,000]
 = 100,000
Gross Profit Ratio = (100,000 / 500,000) × 100
= 20%
Viraj Chokshi Year 11 Ratios

7. Viraj Chokshi Year 11 Ratios
Net Profit Ratio
Net profit ratio is the ratio of net profit (after taxes) to net sales. It is expressed as percentage.
Net Profit= Gross Profit – Overheads
Net Profit Ratio= (Net Profit/Sales) x 100
Viraj Chokshi Year 11 Ratios

8. Viraj Chokshi Year 11 Ratios
Example
Total sales = $520,000; Sales returns = $ 20,000;  Net profit $40,000
Calculate net profit ratio.
Net sales = (520,000 – 20,000) = 500,000
Net Profit Ratio = [(40,000 / 500,000) × 100]
= 8%
Viraj Chokshi Year 11 Ratios

9. ROCE ratios (Return On Capital Employed)
The prime objective of making investments in any business is to obtain satisfactory return on capital invested. Hence, the return on capital employed is used as a measure of success of a business in realizing  this objective.
ROCE= (Net Profit/Capital employed)*100
Viraj Chokshi Year 11 Ratios

10. Viraj Chokshi Year 11 Ratios
Example
Net Profit=100000, Capital Employed=
ROCE= (Net Profit/Capital employed)*100
ROCE= (100000/ )*100
ROCE= 10%
Viraj Chokshi Year 11 Ratios

11. Viraj Chokshi Year 11 Ratios
Current Ratio
This measures how easily a business can meet its immediate financial obligations.
It should be between 1.5 and 2. If its too low the business may have difficulty paying its debts. If it is too high then it suggests that money is being tied up unprofitably.
Current Ratio = Current Assets / Current Liabilities
Viraj Chokshi Year 11 Ratios

12. Viraj Chokshi Year 11 Ratios
Example
Current assets are $1,200,000 and total current liabilities are $600,000.
Calculate current ratio.
Current Ratio = 1,200,000 / 600,000 = 2
Viraj Chokshi Year 11 Ratios

13. Viraj Chokshi Year 11 Ratios
Acid-Test Ratio
Stocks are very hard to turn it into cash.
If a high proportion of current assets is held in stocks, it may be difficult to liquidate these quickly. Taking stock away from current assets gives a better measure of liquidity.
It should be 1.
ATR= (Current Assets- Stocks)/Current Liabilities
Viraj Chokshi Year 11 Ratios

14. Viraj Chokshi Year 11 Ratios
Example
Current Assets including stock= , Stock= 60000, current liabilities=40000
ATR= (Current Assets- Stocks)/Current Liabilities
ATR= ( )/40000
ATR= 1
Viraj Chokshi Year 11 Ratios

15. Viraj Chokshi Year 11 Ratios
Overheads Ratio
Expense ratios indicate the relationship of various expenses to net sales.
Particular Expense = (Particular expense / Net sales) × 100
Viraj Chokshi Year 11 Ratios

16. Viraj Chokshi Year 11 Ratios
Example
Expenses=80000, Sales=100000
Particular Expense = (Particular expense / Net sales) × 100
P.E.= (80000/100000)*100
=80%
Viraj Chokshi Year 11 Ratios

17. Viraj Chokshi Year 11 Ratios
Gearing
Gearing shows how much of the capital employed is by loans.
Gearing=(Loan finance/Capital employed)*100
Viraj Chokshi Year 11 Ratios

18. Viraj Chokshi Year 11 Ratios
Example
Loan=100000, Capital employed=
Gearing=(Loan finance/Capital employed)*100
Gearing= (100000/200000)*100
Gearing=50%
Viraj Chokshi Year 11 Ratios

19. Viraj Chokshi Year 11 Ratios
Mark-up
Mark-up also means Profit Margin.
Markup is the amount of profit added to the cost of sales.
Markup=(Gross Profit/Cost of goods sold)*100
Gross Profit= Sales – Cost of goods sold
Cost of goods sold= (Opening Stock + Purchases) – Closing Stock
Viraj Chokshi Year 11 Ratios

20. Viraj Chokshi Year 11 Ratios
Example
Sales=600000, Opening Stock= , Purchases=50000, Closing Stock=50000
Cost of goods sold= (Opening Stock + Purchases) – Closing Stock
COGS= ( )-50000=
Gross Profit= Sales – Cost of goods sold
G.P= =500000
Markup=(Gross Profit/Cost of goods sold)*100
M.U.= (500000/100000)*100= 500% mark-up.
Viraj Chokshi Year 11 Ratios