Profitability & Liquidity

Profitability is...

• the reasonable return of the business during an accounting period.

• the ability of the business to meet debts as they fall due

Liquidity is...

• the reasonable return of the business during an accounting period.

• the ability of the business to meet debts as they fall due

The Gross Profit Ratio =

• Gross Profit/Sales

• Profit/Sales

• Expense item/Sales

• Profit/Average Assets

Return on Sales Ratio =

• Gross Profit/Sales

• Profit/Sales

• Expense item/Sales

• Profit/Average Assets

Expense Ratio =

• Gross Profit/Sales

• Profit/Sales

• Expense item/Sales

• Profit/Average Assets

Return on Assets Ratio =

• Gross Profit/Sales

• Profit/Sales

• Expense item/Sales

• Profit/Average Assets

Return on Owner's Investment Ratio =

• Gross Profit/Sales

• Profit/Sales

• Profit/Average Equity

• Profit/Average Assets

Gross profit ratio shows

• how much of every sales dollar is gross profit

• the net profit percentage of each dollar of sales

• the expense category percentage of each dollar of sales

• how efficently a business uses its assets to generate profit

Return on sales ratio shows

• how much of every sales dollar is gross profit

• the net profit percentage of each dollar of sales

• the expense category percentage of each dollar of sales

• how efficently a business uses its assets to generate profit

Expense ratio shows

• how much of every sales dollar is gross profit

• the net profit percentage of each dollar of sales

• the expense category percentage of each dollar of sales

• how efficently a business uses its assets to generate profit