Profitability Ratio

ABES Business School
ABES Business School
Ratio
Analysis
Financial Accounting &

Analysis
Type
Type 1 Type Type Type
1 2 3 4 5
Liquidity Long term Activity
Profitability Other
Ratio/ Solvency Ratio/Turnover
ratio/ ratio Ratio
Solvency ratio/
I Efficiency ratio
ratio Leverage
Accounting
Ratio
Leverage/
Liquidity Ratio Long term Turnover ratio Profitability
Solvency
Gross profit
Current Ratio Debt equity Stock turnover
ratio
Debt to total
Quick Ratio Debtor turnover Net profit ratio
Assets
Creditor
Absolute liquid Proprietary ratio Operating profit
turnover
Cash ratio Debt ratio Working capital Operating ratio

Operating
. ratio
Net Profit
Ratio
Operating Other
Gross Profit Ratio
. ratio . Profit
Ratio (Stock
Market
/B/S Ratio)
Profitability ratio
Gross Profit Ratio
Operating Profit Ratio
Net Profit Ratio
Turnover Ratio /Activity Ratio/Efficiency Ratio

• Cost of Goods sold + Profit = Sales
(Cost of sales )
Opening Stock + Net Purchases + Direct Expenses- Closing Stock
Expenses incurred on Manufacturing or Purchase of Goods
Freight , Carriage , Wages , Factory Rent , Manufacturing Expenses,

Oil Gas & Water , Duty , Octroi
Sales - Cost Of Goods Sold = Gross profit

Trading Account for the year ending 31st March XXXXXX
Particulars Rs Particulars Rs
To Opening Stock XXXX By Sales XXXXXXX
Purchase XXXXXX Less Sales return XXXXXX
Less Purchase return XXXXXX XXXXX --------------- XXXXXXX
------------
To Direct Expenses
Freight
Carriage By Closing Stock XXXXXX
Wages
Octroi
Duty
Coal ,Gas & water
Manufacturing Expenses By Gross Loss
To Gross Profit
(Balancing figure
XXXXX XXXXXX
Gross Profit + Other Income – Indirect Expenses = Net Profit
• Interest Received
• Commission received
• Discount received
• Dividend received
• Profit on sales of Assets
• Gain on sales of Investment
Profit & Loss Account for the year ending 31st March XXXXXX
Particulars Rs Particulars Rs
To Gross Loss XXXXX By Gross Profit XXXXXX
To Operating Expenses By Non Operating XXXXXX
Rent Income
Salary
Discount Allowed
Rent received
Trade Expenses Interest received
Advertisement Commission received
Selling expenses Dividend received
To Non Operating Expenses XXXXX Discount received
loss on sale of Asset /Investments
interest Paid
XXXXX XXXXX
By Net Loss
To Net Profit
Gross Profit Gross Profit
Ratio= --------------------100
Net sales
Gross profit = Sales –C.O.G.S

Net sales = Sales –sales return
Analysis :- Compare with previous year data / Other firm

Net Profit Net Profit
Ratio= --------------------100
Net sales
Net profit = Gross Profit – Indirect Exp

Net sales = Sales –sales return
Analysis :- Compare with previous year data / Other firm

Qn-1 :-Calculate the gross profit ratio from the following data :
Sales ` 3,25,000 sales returns ` 25,000 and cost of revenue from
operations ` 2,40,000
Qno-2
Calculate gross profit ratio and net profit ratio from the
following figures. Revenue from operations (Sales) `
1,50,000 Cost of revenue from operations ` 1,20,000
Operating expenses ` 12,000
:
Operating Profit Operating Profit
Ratio = ------------------------
Net sales
Gross profit - Operating Expenses = Operating profit
Net profit + Non operating Expenses = Operating profit

Operating Operating Cost
Ratio = ------------------------
Net sales
Cost of Goods sold+ Operating Expenses =Operating cost
Net profit + Non operating Expenses = Operating profit

Qno-1 :-From the following information
Revenue from Operations = 3,40,000
cost of revenue from operations 1,20,000
selling expenses 80,000
Administrative expenses 40,000
calculate Gross profit ratio and operating ratio
Qn-2 :- from the following information for the year ended 31st march 2021
Total sales –Rs.5,00,000 sales return Rs.50,000 Gross profit 40% of net
sales cost of goods sold - ??
Operating expenses Rs.60,000 Non operating Income – 21,000 ,
Tax rate is 50%
Evaluate the performance of company with the help of following ratio
(i) Gross profit
(ii) Operating ratio
(iii) Net operating profit ratio
(iv) Net profit ratio
Fixed Assets
Turnover ratio = Net sales
------------------------
Average Fixed Assets
Revenue from operations Rs.15,00,000 , current

Assets Rs.6,25,000 , Total Assets Rs.10,00,000 ,Non
current Liabilities Rs. 5,00,000 Shareholders funds
Rs.2,50,000
Interest coverage ratio
• Interest Coverage Ratio= EBIT / Interest

EBIT /PBIT Profit before interest and taxes

Profitability Ratio

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ABES Business School

ABES Business School

Financial Accounting &

Cash ratio Debt ratio Working capital Operating ratio

Operating Profit Ratio

Net Profit Ratio

Turnover Ratio /Activity Ratio/Efficiency Ratio

Opening Stock + Net Purchases + Direct Expenses- Closing Stock

Expenses incurred on Manufacturing or Purchase of Goods

Freight , Carriage , Wages , Factory Rent , Manufacturing Expenses,

Sales - Cost Of Goods Sold = Gross profit

Gross profit = Sales –C.O.G.S

Analysis :- Compare with previous year data / Other firm

Net profit = Gross Profit – Indirect Exp

Analysis :- Compare with previous year data / Other firm

Gross profit - Operating Expenses = Operating profit

Net profit + Non operating Expenses = Operating profit

Cost of Goods sold+ Operating Expenses =Operating cost

Net profit + Non operating Expenses = Operating profit

Revenue from operations Rs.15,00,000 , current

• Interest Coverage Ratio= EBIT / Interest

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