3.5 Profitability & liquidity ratio analysis

Capital

________ employed:= (non- current assets + current assets) current liabilities or non- current liabilities + shareholders equity.

Capital employed

= (non-current assets + current assets) current liabilities or non-current liabilities + shareholders equity

Liquid assets = Current assets

Inventories

Gross profit margin, net profit margin and return on capital employed (%)

3 profitability ratios

Capital employed

(Non-current assets + current assets) current liabilities or non-current liabilities + shareholders' equity. The total capital invested in the business

Current ratio, acid test ratio and liquid assets

3 liquidity ratios

Current assets - Inventories

Liquid assets

(Gross profit / Sales revenue) x 100

Gross profit margin (%)

(Net profit / Sales revenue) x 100

Net profit margin (%)

(Net profit / Capital employed) x 100

Return on capital employed (%)

Current assets / Current liabilities

Current ratio

Liquid assets / Current liabilities

Acid test ratio