3.5 Profitability & liquidity ratio analysis

Accounting ratios

• 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