Partnerships

Partnerships

1. Profitibaility

   • ability of business to make a proft
   • Indicators
     • Gross profit on sales
       • Want: ratio must be high and increasing
     • gross profit on cost of sales
       • relates to target mark-up
       • Markup that you have achieved
         • Have we achieved the mark up or not?
           • stolen
           • giving customers to many discounts
           • staff taking for personal use
     • Operating profit on sales
       • usually less that gross profit on sales because we got operating expenses to subtract
         • want the ratio to be highest as possible because then we can keep more money
     • Operating expenses on sales
       • best: lowest ratio
         • if ratio i high
           • difficulty controlling costs
     • Net profit on sales
       • best: ratios must be high as possible

2. Solvency

   • Assets > Liabilites = solvemt
   • Insolvent = Assets<Liabilities
     • file for bankrupsy

3. Liquidity

   • Cash flow of the business
   • Ability of partnership to pay short term debt
   • Indicators
     • Current ratio
       • CA:CL (set it out so CL is = to 1)
         • do not keep ratio 200000:100000
         • dont put 1:2 beause right hand side is always supposed to =1
           • Reason is to compare 1 year to the other
       • 2:1 or higher is usually better
     • Acid-Test Ratio
       • 1:1 or better

4. Risk and Return

   • How risky it would be for a potential investor to put money into the business?
   • Return the business will earn

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