Ratio Analysis

Profitability and liquidity ratios and how to interpret them.

Ratios turn the financial statements into useful, comparable measures.

Profitability

Gross profit margin

= \dfrac{\text{gross profit}}{\text{sales}} \times 100

Profit margin

= \dfrac{\text{profit for the year}}{\text{sales}} \times 100

Worked example. Gross profit £19,000 on sales £50,000 → gross margin $= 38\%$ .

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Profitability

Gross profit margin

= \dfrac{\text{gross profit}}{\text{sales}} \times 100

Profit margin

= \dfrac{\text{profit for the year}}{\text{sales}} \times 100

Worked example. Gross profit £19,000 on sales £50,000 → gross margin

= 38\%