Key ratios - profitability

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1. Understanding and using accounting information
2. Key ratios - profitability
3. Key ratios - liquidity
4. Key ratios - efficiency
5. Key ratios - stability
6. The cash cycle
7. Trend analysis
8. Benchmarks
9. Presentation
10. Decline in profit
11. Understanding and using accounting information - example
12. How changes to the numerator and the denominator impacts on the ratio
13. Liquidity ratios
14. Quick asset ratio
15. Efficiency Ratios
16. Long Term Stability
17. Limitations in the Use of Accounting Information
18. Evaluating Accounting Information
19. Owner's Equity

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• Study Notes

  Diploma in Business Management & Entrepreneurship - Key ratios - profitability
• Topic Reviews
  Turkey 0 0 09 April 2017

  

  BabaJide Martins F.

  Profitability is the measure of profit against sales, assets, capital or other figures.

  Saint Lucia 0 0 09 April 2017

  

  Hermina S.

  Is it correct to define probability as - the return of profit on capital investment?

  South Africa 0 0 09 April 2017

  

  Morne V.

  Is it correct to define probability as - the return of profit on capital investment

  Nigeria 0 0 09 April 2017

  

  Sunday O.

  balancing the ration and profitability

  Uganda 0 0 09 April 2017

  

  Bogere Stephen W.

  Is it possible to use only Alison certificates to join another level of education?or Is it accredited to the international council of education?

  Uganda 0 0 09 April 2017

  

  Odongo M.

  Accounting -> Key ratios - profitability Key ratios - profitability The key ratios used in the previous course are repeated here. Several ratios have been added and are indicated by an asterisk. Profitability is the measure of profit against sales, assets, capital or other figures. Ratio Formula Explanation Profitability 1. Return on assets *Return on owner's investment (ROI) Net profit/average owners equity This ratio shows the return to the owner on funds invested in the business. Allowing for the extent of funds borrowed this ratio may differ from return on assets. Return on assets (ROA) Net profit/average total asset NP/TA This ratio reflects the return on the total assets used in the business. The average of total assets at the beginning of the period and at the end is used in case there is a significant change in assets. 2. Return on sales Gross profit ratio Gross profit/sales Reflects the difference between the selling price of the stock and the cost price. This may be described as the mark up on stock. Net profit ratio Net profit/sales Measures net profit against sales. It reflects total revenue against all costs and expenses incurred by the business. When used in conjunction with the Gross profit ratio a business is able to discern whether the new situation is due to change in trading or operating. *3. Expense ratios An example is 'selling expenses to sales'. The business may seek to measure other major classifications of expenses against sales. These ratios are particularly useful when engaged in trend analysis. The responsiveness of an expense category such as selling expenses to sales indicates the effectiveness in the use of those expenses to generate revenue for the business. 4. Asset turnover Sales/average assets Displays the revenue generated by assets. It shows how well the business is using its assets. The carrying of excess stock, debtors or bank will be reflected by a decline in the ratio.

  Ghana 0 0 08 April 2017

  

  Nana Amankwah K.

  Profitability is the measure of profit against sales, assets, capital or other figures.

  Nepal 0 0 08 April 2017

  

  Manish K.

  All accepted ratios provide information about financial health of an organization. it provides up to date information about net profit ratio, expenses ratio, assets turn over, etc.

  United States of America 0 0 08 April 2017

  

  Penelope M.

  ok, I got it

  Morocco 0 0 08 April 2017

  

  Adil N.

  What is profitability?
• Text Version

  Diploma in Business Management & Entrepreneurship - Key ratios - profitability

  Accounting - Key ratios - profitability
  
  Key ratios - profitability
  
  The key ratios used in the previous course are repeated here. Several
  ratios have been added and are indicated by an asterisk.
  
  Profitability is the measure of profit against sales, assets, capital or
  other figures.
  
  RATIO
  FORMULA
  EXPLANATION
  
  PROFITABILITY
  
  1. Return on assets
  
  *Return on owner\'s investment (ROI)
  Net profit/average owners equity
  This ratio shows the return to the owner on funds invested in the
  business. Allowing for the extent of funds borrowed this ratio may differ
  from return on assets.
  
  Return on assets (ROA)
  Net profit/average total asset NP/TA
  This ratio reflects the return on the total assets used in the business.
  The average of total assets at the beginning of the period and at the end
  is used in case there is a significant change in assets.
  
  2. Return on sales
  
  Gross profit ratio
  Gross profit/sales
  Reflects the difference between the selling price of the stock and the
  cost price. This may be described as the mark up on stock.
  
  NET PROFIT RATIO
  Net profit/sales
  Measures net profit against sales. It reflects total revenue against all
  costs and expenses incurred by the business. When used in conjunction with
  the Gross profit ratio a business is able to discern whether the new
  situation is due to change in trading or operating.
  
  *3. Expense ratios
  An example is \'selling expenses to sales\'. The business may seek to
  measure other major classifications of expenses against sales.
  These ratios are particularly useful when engaged in trend analysis. The
  responsiveness of an expense category such as selling expenses to sales
  indicates the effectiveness in the use of those expenses to generate
  revenue for the business.
  
  4. Asset turnover
  Sales/average assets
  Displays the revenue generated by assets. It shows how well the business
  is using its assets. The carrying of excess stock, debtors or bank will be
  reflected by a decline in the ratio.
  
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