Ratio Analysis

... RATIO ANALYSIS · Profitability ratios - a measure of how much profit its activities generate. 1. Gross Profit: Total Revenue - Variable (Direct) Costs Gross Profit Gross Profit Margin = -------------- x 100 Turnover - Narrow margins - tend to be on products/services which are high volume, mass market products which are highly competitive. Such as fmcgs', retail stores. - Wide margins - tend to be on products/services that are low volume, high value with relatively high degree of monopoly power. More frequent in the services sectors. - Can increase by increasing turnover relative to cost of sales like increasing prices. 2. Net Profit: Total revenue - Total Costs (VC+FC) Net Profit before int and tax. Net Profit Margin = ---- ------------------------ x 100 Turnover Retained Profit 3. Retained Profit Margin = ------------------- x 100 Turnover * Efficiency Ratios- shows how well the business has performed - Shows how effective the firm is in using

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