How to improve ratios

• Gross Profit margin:

  • Sell for more
  • Find a cheaper supplier

  Issues:

  • Putting prices up may lose customers and sales will fall.
  • Cheaper quality goods may mean lower quality.
• Profit:

  • Increase gross profit.
  • Reduce expenses.

  Issues:

  • Effect on function of the business.
• Expenses:

  • Reduce expenses - identify areas for saving.

  Issues:

  • Effect on function for business.
• Acid/Current:

  • Increase sales/increase inventory turnover ratio.
  • Maintain lower inventory.

  Issues:

  • Price reductions and increased advertising is lower.
  • Risk of running out of inventory.
• Inventory turnover:

  • Price reductions and increased advertising.
  • Hold less inventory.

  Issues:

  • Reduced profit on each item.
  • Run out of inventory.
• Trade receivables:

  • Discounts.
  • Stricter credit control.

  Issues:

  • Reduced profit.
  • May lose customers.
• Trade payables:

  • Find new suppliers.
  • Negotiate new terms.

  Impact:

  • May be less reliable/more expensive.
  • May stop supplying/pay interest/no discount.