Understanding Profitability and Liquidity Ratios

What does the Gross Profit Margin indicate about a company?

• The percentage of revenue that is net profit.

• How efficiently a company produces goods/services relative to its revenue.

• The percentage added to the cost of goods sold to arrive at the selling price.

• The ability to pay off short-term liabilities without relying on the sale of inventory.

How is the Net Profit Margin calculated?

What does the Mark-up ratio show?

• The percentage of revenue that is net profit.

• The efficiency of capital employed.

• The percentage added to the cost of goods sold to arrive at the selling price.

• The ability to meet short-term liabilities with short-term assets.

Which ratio assesses a company's profitability and the efficiency with which its capital is employed?

• Gross Profit Margin

• Net Profit Margin

• Return on Capital Employed (ROCE)

• Current Ratio

How is the Current Ratio calculated?

What does the Acid-Test (Quick) Ratio measure?

• The ability to pay off short-term liabilities without relying on the sale of inventory.

• The efficiency of inventory turnover.

• The percentage of revenue that is net profit.

• The proportion of a company's funding from debt.

How is Inventory Turnover calculated?

What does Trade Receivables Days indicate?

• The average number of days suppliers take to pay invoices.

• The average number of days customers take to pay invoices.

• The efficiency of inventory turnover.

• The ability to meet short-term liabilities with short-term assets.

How is Trade Payables Days calculated?

What does the Asset Turnover ratio assess?

• The efficiency of inventory turnover.

• How efficiently a company uses its assets to generate revenue.

• The proportion of a company's funding from debt.

• The ability to pay off short-term liabilities without relying on the sale of inventory.