Chap 13. Monitoring the business

• Profitability ratios

  • Gross profit margin
  • Net profit margin
  • Return on investment
• Liquidity ratios

  • Current ratio/working capital ratio
  • Acid test/ quick ratio
• Return on investment/ return on capital employed

  • Debt/ equity or gearing ratio
• Gross profit margin 


  Gross profit / sales X 100
• Net profit margin 


  Net profit / sales X 100
• Return on investment 


  Net profit / capital employed X 100
• Current ratio / working capital ratio 


  Current assets / Current liabilities (2:1)
• Acid test / quick ratio


  Current assets - closing stock / Current liabilities (1:1)
• Debt/ equity or gearing ratio


  Debt capital / equity capital X 100 ( equity is 1)