Commerce ratios 2.0

Accounts receivable turnover ratio formula

365 ÷ (net sales/debtors)

Debt to equity ratio formula

Total liabilities / total equity

Net profit ratio Formula

(Net profit / net sales) x 100

Gross profit ratio Formula

(Gross profit / net sales) x 100

Return on equity ratio Formula

(Net Profit / total equity) x 100

Current ratio Formula

current assets / current liabilities

Accounts receivable turnover ratio category and comment

Efficiency

Comment = It is taking the business __ days on average to collect money owed from debtors. This is inside/outside the credit terms of __ days, therefore the business needs to manage its debtors more efficiently/is managing its debtors efficiently.

Debt to equity ratio category and comment

Solvency (gearing)

Comment = For every $1 in equity, the business has __ cents in debt. The business is lowly/highly geared & is/isn't able to cover long term debt (solvent/risk of insolvency).

Net Profit ratio category and comment

Profitability

Comment = For every $1 in sales, the business generates __ cents in net profit. This is above the industry average of __% and therefore the business is more profitable than average.

Gross profit category and comment

Profitability

For every $1 of sales there is __ cents in net profit. This is above the industry average of __% and therefore the business is more profitable than average.

Expense ratio category and comment

Efficiency

For every $1 in sales, __ cents goes to expenses. This is higher/lower than [last years ratio/the industry average] of __ cents and therefore the business is more/less efficient at controlling costs.

Current ratio category and comment

Solvency (Gearing)

For every $ in current liabilities, the business has $_.__ in current assets to cover them. Therefore, the business is/is not liquid and can/cannot cover short term debts. Only if above benchmark - However, the business is not using its cash efficiently and should put cash into assets earning greater returns, or reduce liabilities.