Ratio Analysis

Name

Report you can find

Description

Quick Asset Ratio

Balance Sheet

The Quick assets ratio is the ratio of quick assets to quick liabilities. The ratio is calculated by dividing quick assets with quick liabilities, quick assets/quick liabilities. The Quick assets ratio is only expressed in a ratio format, for example 1.4:1. A 1.4:1 ratio format indicates that for every dollar of immediate current liabilities, your business has 1.4 dollars of current convertible assets to pay for them.

The Quick assets ratio gives an indication of the level of liquid assets that can be used to meet short term liabilities. The quick assets ratio provides a more conservative measure than the working capital ratio in that it excludes other current assets and liabilities.

Working Capital Ratio

Balance Sheet

The Working capital ratio is the ratio of current assets to current liabilities. The ratio is calculated by dividing current assets with current liabilities, current assets/current liabilities. The Working capital ratio is only expressed in a ratio format, for example 2:1. A 2:1 ratio format indicates that for every dollar of current liabilities, your business has 2 dollars of current assets.

The Working capital ratio can give an indication of the ability of your business to pay its bills. A stronger ratio indicates a better ability to meet ongoing and unexpected bills, therefore taking the pressure off your cash flow. A weaker ratio may indicate that your business is having greater difficulties meeting its short-term commitments and that additional Working capital support is required.

Gross Profit Ratio (or Margin)

Profit & Loss

The Gross profit ratio is the ratio of Gross profit to Net sales or total income. The ratio is calculated by dividing Gross profit with Net sales, Gross profit/Net sales. A Gross profit ratio can be expressed in either a ratio format, for example 0.2:1, or percentage format, for example 20%. A 0.2:1 ratio format indicates that for each dollar sale generated, 20 cents represents the Gross profit. If the percentage format is used, it indicates that 20% of sales generated is represented by Gross profit.

The Gross profit ratio measure is important for your business, because if the Gross profit ratio is high it means your business can cover the other operating and extraordinary expenses and return a healthy Net profit. If the ratio is low, it could mean that not all of the other expenses are covered by the Gross profit, resulting a Net loss.

Net Profit Ratio (or Margin)

Profit & Loss

The Net profit ratio is the ratio of Net profit to Net sales or total income. The ratio is calculated by dividing Net profit with Net sales, Net profit/Net sales. A Net profit ratio can be expressed in either a ratio format, for example 0.2:1, or percentage format, for example 20%. A 0.2:1 ratio format indicates that for each dollar sale generated, 20 cents represents the Net profit. If the percentage format is used, it indicates that 20% of sales generated is represented by Net profit.

The Net profit ratio measure indicates the efficiency of your business operations after other operating and extraordinary expenses. If the Gross profit ratio is high and the Net profit ratio is low, it indicates that other expenses have increased at a faster rate than the Cost of Goods Sold, which can be a serious concern to you. Therefore, the aim is to gradually increase Gross profit and Net profit ratios proportionately over time.