Gross Profit Formula Gross profit is equal to the net sales minus the cost of goods sold. The cost of goods sold is the cost of all inventory sold, including both fixed costs and variable costs. For example, facility rent, utilities and facility manager salaries tend to be fixed costs. Manufacturing labor, supplies, packaging and shipping costs are all variable.
Financial statement analysis explanations Gross profit ratio GP ratio is a profitability ratio that shows the relationship between gross profit and total net sales revenue. It is a popular tool to evaluate the operational performance of the business.
The ratio is computed by dividing the gross profit figure by net sales. When gross profit ratio is expressed in percentage form, it is known as gross profit margin or gross profit percentage.
The formula of gross profit margin or percentage is given below: The basic components of the formula of gross profit ratio GP ratio are gross profit and net sales.
Gross profit is equal to net sales minus cost of goods sold. Net sales are equal to total gross sales less returns inwards and discount allowed.
The information about gross profit and net sales is normally available from income statement of the company. The following data relates to a small trading company.
Compute the gross profit ratio GP ratio of the company.
With the help of above information, we can compute the gross profit ratio as follows: It means the company may reduce the selling price of its products by Gross profit is very important for any business.
It should be sufficient to cover all expenses and provide for profit. There is no norm or standard to interpret gross profit ratio GP ratio. Generally, a higher ratio is considered better.
When the ratio is compared with that of others in the industry, the analyst must see whether they use the same accounting systems and practices.Net profit ratio is a profitability ratio which is expressed as a percentage hence it is multiplied by Net sales include both Cash and Credit Sales, on the other hand, net profit is the net operating profit i.e.
the net profit before interest and taxes. Net profit ratio (NP ratio) expresses the relationship between net profit after taxes and sales. This ratio is a measure of the overall profitability net profit is arrived at after taking into account both the operating and non-operating items of incomes and expenses.
Start studying Edexcel Business Formulas. Learn vocabulary, terms, and more with flashcards, games, and other study tools. Ratios and Formulas in Customer Financial Analysis. Conversely, a current ratio significantly lower than the industry average could indicate a lack of liquidity.
Formula Current Assets Current Liabilities. Cash Ratio Formula Gross Profit Net Sales. Financial Leverage Ratio. Net profit ratio (NP ratio) is a popular profitability ratio that shows relationship between net profit after tax and net sales.
It is computed by dividing the net profit (after tax) by net sales.
Formula: For the purpose of this ratio, net profit is equal to gross profit minus operating expenses and income tax. Operating net profit ratio is calculated by dividing the operating net profit by sales.
This ratio helps in determining the ability of the management in running the business. Formula: Operating profit ratio = (Operating profit / Net sales) × Operating profit = Gross profit - Administration and selling expenses = 1,40, - (35,