Introduction to Accounting Ratios

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Introduction to Accounting Ratios

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Accounting Ratios

• Accounting ratios are means to present
  information in form of ratios(??) or
  percentages(???).

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Introduction

• A ?????? B ???, ???????? B ??????????

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Use of Accounting Ratios

• Measure the profitability of the company. (????)
• Analyse the financial or liquidity position.
  (????)
• Check the efficient in management.
• (????)
• Estimate future performance and assess previous
  results.(???????????)

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Types of Accounting RatiosProfitability
ratios(????)Liquidity ratios (??????)
Efficiency ratios(????)
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A. Profitability Ratios

• 1. Gross Profit to sales ratio(?????)
• Gross profit/Sales X 100
• 2. Net Profit to sales ratio(?????)
• Net profit/Sales X 100

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Profitability Ratios

• 3. Return on capital employed
• (?????)
• Net Profit/ Capital Employed X100

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B.Liquidity Ratios

• 1. Current ratio (Working capital ratio)
• (????)
• Current Assets/Current Liabilities
• 2. Acid test ratio (????)
• (Current Assets-stock)/Current Liabilities

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C. Efficiency Ratios

• 1. Stock turnover ratio (??????)
• Cost of Goods sold/Average stock
• 2. Debtors collection period(???????)
• Debtors/Sales X 365days(12 months)

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Efficiency Ratios

• 3.Creditorsrepayment period
  (???????)
• Creditors/Purchases X 365days(12 months)

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Mark-up Margin

• Mark-up ??
• Gross Profit shown as a percentage of cost

Gross Profit/ Cost
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Mark-up Margin

• Margin ??
• Profit shown as a percentage of selling price

Gross Profit /Sales
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Relationship betweenMark-up and Margin

• Mark-upGross Profit/ Cost
• MarginGross Profit / Sales
• Sales Gross Profit Cost
• If Mark-up1/2
• Then Margin 1/12 1/3

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Exercises