Gross Profit Ratio
The formula for Gross Profit Ratio (GPR)
What is gross profit divided by net sales multiplied by 100%?
Gross Profit / Net Sales x 100%
The formula for Net Profit Ratio (NPR).
What is net profit divided by net sales multiplied by 100%?
Net Profit / Net Sales x 100%
The formula for Return on Owner's Equity (ROE).
What is net profit divided by average owner's equity multiplied by 100%?
Net Profit / Average Owner's Equity x 100%
The first step of analysing a ratio.
What is explaining what the ratio is telling us?
The three ways Gross Profit Ratio can be expressed.
What is decimal, percentage and dollar form.
I.e. 0.55, 55%, For every dollar in sales, 55c is gross profit.
The three ways Net Profit Ratio (NPR) can be expressed.
What is decimal, percentage and dollar form.
I.e. 0.55, 55%, For every dollar in sales, 55c is net profit.
What does Return on Owner's Equity (ROE) tell us.
What is the return to the owner on the amount invested in the business?
Industry Average
What is a % standard used to help business work out if their business is on par (on track) with other businesses in their industry?
What does Gross Profit Ratio (GPR) tell us?
What is the margin of profit available to cover expenses?
What does Net Profit Ratio (NPR) tell us?
What is the percentage of revenue left after all expenses have been deducted from sales?
Ways in which an owner can see if his investment is worthwhile.
What is compare it to other options (interest rates, other investments, shares etc.)?
Importance of industry average (IA) to each industry.
What is important to have it specific to different industries because of the different quantity in sales and pricing of COGS. It allows for a business to make educated decisions about their business?
Ways in which Gross Profit Ratio (GPR) can be improved.
What is an increase in sales with a less than proportional increase in the cost of goods sold (price increase) and what is a decrease in the cost of goods sold (COGS) with a less than proportional decrease in sales (negotiating lower cost with suppliers)?
Ways in which Net Profit Ratio (NPR) can be improved.
What is an increase in sales revenue (sell more products) and a reduction in expenses (i.e., advertising, electricity, wages, printing expenses, rent)?
The account you go to to find the figures for calculating average owner's equity/
What is Statement of Financial Position?
Being specific when recommending solutions.
What is reducing electricity by turning power off at night, reducing advertising by becoming more active on social media?
What is Gross Profit Ratio (GPR)?
Gross Profit: 35 000
Sales: 50 000
Sales Returns: 5 000
What is 35 000 / 45 000 x 100% = 0.77 or 77%?
What is Net Profit Ratio (NPR)?
Net Profit: 100 000
Sales: 150 000
Sales Returns: 20 000
What is 100 000 / 130 000 x 100% = 0.76 or 76%?