Know your knowledge ratios

Historical comparisons of a business in two different time periods can be analysed with profitability ratios.

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The gross profit margin (GPM) is calculated by using the formula:
(Gross profit ÷ Sales revenue) × 100.

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ROCE stands for Rate of Capital Expenditure.

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The profit margin is calculated by using the formula:
(Profit ÷ Sales revenue) × 100.

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Sales turnover is an example of a profitability ratio.

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Raising the price of products sold in highly competitive markets does not improve the gross profit margin (GPM) for the business.

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The return on financial investments can be analysed by using profitability ratio analysis.

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Adopting aggressive promotional strategies that persuade more customers to buy a firm's products can help to improve its gross profit margin (GPM).

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The current ratio is calculated by using the formula:
Current liabilities ÷ Current assets.

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A firm’s financial performance compared with its competitors can be analysed using profitability and liquidity ratios.

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