Profitability and Liquidity Ratios

Ratio Analysis

A quantitative management tool for analysing the financial performance of a business

Profitability Ratios

Examine profit in relation to other figures, such as ratio of profit to sales revenue.

Gross profit margin

Analyzes the profitability of a firm after deducting the direct costs, with: The provision of services, and the making and selling goods

Profit Margin

Analyzes the profitability of a firm after deducting indirect costs from gross profit

Return on capital employed

A profitability ratio that measures the financial performance of firm compared with the amount of capital invested

Liquidity Ratios

Looks at the ability of a firm to pay its short-term liabilities

Current Ratio

A company’s ability to pay its short-term liabilities with its short-term assets.

Quick (acid test) Ratio

Like the current ratio except it ignores stock when measuring the short-term liquidity of a business