Profitability ratios 1

what are the 4 types of profitability ratios?

• gross profit ratio

• profit ratio

• expense ratio

• return on assets ratio

What does the gross profit ratio show?

The percentage of gross profit that is contained in each dollar of sales

what is an increase in the gross profit ratio casued by?

1) an increase in the selling price of inventory is greater thab any increase in the purchase price

2) the purchasing of the inventory at a lower price

what is an increase in the gross profit ratio casued by?

1. decrease in the selling price due to :

   • new competitors entering market

   • price war between competing businesses

   • a plan to increase the market chare by selling inventory at a lower price

2. increase of the purchase price of the inventroy that is greater than any increase in selling price

What does the profitt ratio do?

Show the percentage of profit that is contained within each dollar of sales

interoperate an increase in the profit ratio

An increase in the profit could be caused by an increase in the gross profit or a reduction in expenses