3.5 Profitability & liquidity ratio analysis

**Profitability ratios****Gross profit margin (%)**:

**Net profit margin (%)**:**Return on capital employed (%)**:**Capital employed**: = (non-current assets + current assets) current liabilities or non-current liabilities + shareholders’ equity. The total capital invested in the business.

**Liquidity ratios****Current ratio**:

**Acid test ratio**:

**Liquid assets**= Current assets - Inventories

**Profitability ratios****Gross profit margin (%)**:

**Net profit margin (%)**:**Return on capital employed (%)**:**Capital employed**: = (non-current assets + current assets) current liabilities or non-current liabilities + shareholders’ equity. The total capital invested in the business.

**Liquidity ratios****Current ratio**:

**Acid test ratio**:

**Liquid assets**= Current assets - Inventories