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Understanding Accounting Ratios and Formulas

The document outlines key accounting ratios, including Mark-Up and Margin, which express gross profit in relation to cost of sales and turnover, respectively. It explains the relationship between Mark-Up and Margin, providing formulas for conversion between the two. Additionally, it covers the Rate of Stock Turnover, Current Ratio, and Quick Ratio, which assess inventory turnover and the ability of current assets to cover liabilities.

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dat.one.person23
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4 views8 pages

Understanding Accounting Ratios and Formulas

The document outlines key accounting ratios, including Mark-Up and Margin, which express gross profit in relation to cost of sales and turnover, respectively. It explains the relationship between Mark-Up and Margin, providing formulas for conversion between the two. Additionally, it covers the Rate of Stock Turnover, Current Ratio, and Quick Ratio, which assess inventory turnover and the ability of current assets to cover liabilities.

Uploaded by

dat.one.person23
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

ACCOUNTING RATIOS

MARK-UP
• Is gross profit expressed as a percentage/ fraction of cost of sales

• Formula =>
MARGIN
• Is gross profit expressed as a percentage/ fraction of Turnover (Net
Sales)

• Formula =>
RELATIONSHIP BETWEEN MARK-UP &
MARGIN
• If you are given mark-up, you can calculate margin and vice versa
** To get margin, ADD the numerator to the denominator

MARK UP WORKING MARGIN

1.

2.

3. 70%
RELATIONSHIP BETWEEN MARK-UP &
MARGIN
** To get mark-up from margin, SUBTRACT the numerator from the
denominator

MARGIN WORKING MARK-UP

1.

2.

3. 20%
RATE OF STOCK TURNOVER/ STOCK
TURN
• Is the NUMBER OF TIMES that inventory is sold in an accounting period,
i.e. the number of times that inventory is converted into liquid assets

• Formula =>

• Average inventory =>


CURRENT RATIO
• It shows the number of times that current assets are able to cover current
liabilities

• Formula =>
QUICK RATIO/ ACID TEST
• It shows the number of times that LIQUID current assets are able to
cover current liabilities

• Formula =>

• **WORKING CAPITAL = > CURRENT ASSETS – CURRENT LIABILITIES

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