103645
Description
Flashcards by beth.watson7, updated more than 1 year ago
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Created by beth.watson7
almost 11 years ago
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| Question | Answer |
| Gross Profit Percentage GP/NET SALES x 100 | Measures the profit made from buying and selling stock. If the GP% needs to be improved, a business may: - increase its selling price - find cheaper suppliers - try to negotiate discounts from existing suppliers - increase supervision to reduce theft or breakages of stock |
| Mark-up Ratio GP/COSTS OF GOODS SOLD x 100 | Measures how much has been added to the cost of the goods as profit. If the mark-up ratio needs to be improved, a business may: -try to negotiate discounts from existing suppliers -find cheaper suppliers -raise the selling price of their products |
| Net Profit Percentage NP/NET SALES x 100 | Measures the profit made after the business has paid all the business expenses. - try to improve their gross profit percentage -identify any expenses that can be reduced |
| Return on capital employed NP/OPENING CAPITAL x 100 | Measures the return on the capital invested in the business by the owner or shareholder. The owner or shareholder (i.e the investor) should compare the Return on Capital Employed with the return offered by other investment opportunities. |
| Current Ratio/Working Capital Ratio CURRENT ASSETS:CURRENT LIABILITIES | Shows the ability of a business to pay it;s short-term debts. An answer of 2:1 is regarded as generally acceptable. If the Current Ratio needs to be improved, a business may try to increase its current assets or seek ways to decrease current liabilities. The current ratio can be too high. A high bank figure may mean that funds could be better employed in the business to generate income rather than sitting in the bank. |
| Acid Test Ratio CURRENT ASSETS- STOCK: CURRENT LIABILITIES | Shows the ability of a business to pay its short-term debts in a crisis situation. Stocks are removed from current assets as it cannot be guaranteed that they can be quickly sold to generate cash to pay off debts. |
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