PROFITABILITY RATIOS & MARKET TESTS

Financial ratios that tell how much of each dollar of sales, assets, and owner's investments resulted in net profit.

• liquidity ratios
• efficiency ratios
• profitability ratios
• leverage ratios

How do you calculate Gross Profit?

• Sales - NP

• Sales - COGS

• COGS - Expenses

• COGS - NP

The gross profit ratio is calculated by dividing:

• Profit by sales

• Profit by shareholders’ equity

• Gross profit by sales

• Sales by cost of sales

Net income available to stockholders is $125,000 and total assets are $1,096,000 then return on assets would be…

• 0.11%

• 8.77%

• 0.12 times

• 12%

Net income available to stockholders is $150,000 and begining total stockholders equity total was $ 980,000 and ending stockholders equity is 1,120,000 then return on common stockholders equity would be..

• 7%

• 14%

• 0.05 times

• 7.15 times

Two profitability ratios are:

• Return on Assets (ROA)

• Quick Ratio

• Return on Equity (ROE)

• Debt to Equity

What is the formula to calculate Return on Assets?

• Net Income / Total Assets

• Gross Profit / Total Assets

• Net Income / Shareholders' Equity

• Gross Profit / Shareholders' Equity

If a company's Gross Profit is $500,000 and Sales is $1,250,000, what is the Gross Profit Margin?

• 40%

• 60%

• 20%

• 30%

If a company's Net Income is $200,000 and Total Assets are $1,000,000, what is the Return on Assets?

• 20%

• 25%

• 15%

• 10%

Calculate the Gross Profit Margin if Sales are $800,000 and Gross Profit is $200,000.

• 25%

• 20%

• 30%

• 15%