Spreadsheet: 148945d1333627419-amount-of-words-in-rectangular-shape-box-problem-ratio-analysis
Sheet: interpretation

Gross profit ratio is the ratio of gross profit to net sales i.e. sales less sales returns. The ratio thus reflects the margin of profit that a concern is able to earn on its trading and manufacturing activity. It is the most commonly calculated ratio. It is employed for inter-firm and inter-firm comparison of trading results. Gross profit is what is revealed by the trading account. It results from the difference between net sales and cost of goods sold without taking into account expenses generally charged to the profit and loss account. The larger the gap, the greater is the scope for absorbing various expenses on administration, maintenance, arranging finance, selling and distribution and yet leaving net profit for the proprietors or shareholders.  In case, there is increase in the percentage of gross profit as compared to the previous year, it is indicator of one or more of the following factors.  The selling price of the goods has gone up without corresponding increase in the cost of goods sold. The cost of goods sold has gone down without corresponding decrease in the selling price of the goods. Purchases might have been omitted or sales figures might have been inflated. The valuation of the opening stock is lower than what it should be or the valuation of the closing stock is higher than what it should be. In case, there a decrease in the rate of gross profit, it may be due to one or more of the following reasons. There may be decrease in the selling rate of the goods sold without corresponding decrease in the cost of goods sold. There may be increase in the cost of goods sold without corresponding increase in the selling price of the goods sold. There may be omission of sales. Stock at the end may have been under-valued or opening stock may have been over-valued |  | . | Gross Profit Ratio
Current ratio indicates the liquidity of current assets or the ability of the business to meet its maturing current liabilities. High current ratio finds favor with short-term creditors whereas low ratio causes concern to them. An increase in the current ratio reflects improvement in the liquidity position of the business while the decrease signals that there has been a deterioration in the liquidity position of the business. As a convention 2 :1 is regarded as satisfactory level i.e. current assets should be almost double than the current liabilities. The idea is to provide for loss in the value of current assets due to probable decrease in the market value and to offered for any possible delay in the realization of current assets. However there is no scientific reasoning behind 2 : 1 norm. Current ratio compares only the quantity of current assets rather than the quality of assets. A high current ratio though considered to be desirable may prove to be otherwise due to following reasons:  In case of slow moving stocks, these will pile up and will lead to higher ratio. In case of slow collection of trade debts it will also lead to higher ratio. Cash and bank balance may be more then necessary consequently significant portion may remain idle which is not at all desirable: On the other hand if the current ratio is low due to following reasons it is again undesirable: Lack of sufficient funds to meet current obligations and Trading level beyond the capacity of the business. |  |  | Current Ratio
As quick ratio eliminates inventory and prepaid expenses for matching against current liabilities therefore it is a more rigorous test of liquidity as compared to Current ratio. When used along with Current ratio it gives a clearer picture of business's liquidity position. Rule of thumb for acid test ratio is 1 : 1 i.e., if business liquid assets are 100 percent of its current liabilities it is considered to be having fairly good current financial position. However care must be exercised in depending upon too much on rule of thumb stated above. Just like any other ratio the interpretation of acid test ratio also depends on circumstances discussed under Current ratio. Interpretation of this ration is also subject to the same factors and conditions as the Current ratio. |  | . | [NAME]
Expense ratios |  |  | Operating (cost) ratio
Operating (cost) ratio |  |  | Net profit to net worth ratio
Net profit to net worth ratio |  |  | Return on capital employed (ROI)
Return on capital employed (ROI) |  |  | Earning per share
Earning per share
Dividends per share
Capital employed turnover ratio
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