• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Business resources M3

Extracts from this document...


Profitability ratios Profitability ratio measures whether a business is profitable and how much profit the business is making. Gross Profit margin The gross profit is the profit made by the business by just taking into account the direct purchases that the business made to get the goods to the customer. Formula Gross profit/sales revenue x 100 Working out - �657,500/�845, 500 x 100 Answer = 77.76 This means that for every �1 of sales revenue, �0.77 remains after all direct expenses has been deducted. This money contributes towards covering the other expenses of the business. Net profit margin The net profit is the profit the business has made after deducting the expense and tax. ...read more.


So this means that the business makes a net profit of 41.37 percent after deducting all the expenses. Return on capital employed Return on capital employed measure the level of profit compared to the value of net assets invested in your business Formula - Net profit/capital employed x 100 Working out - 349,810/1,600,000 x100 Answer = 21.86% This means that the company is making 22 % on the money they have invested in the company i.e. return on capital employed ratio. This indicates that the business is utilising its assets wisely has it has a high figure. Sales to cost of sales Formula - sales/cost of sales Working out - 845,500/188,000 Answer = �4.49 This means that out of every 1 pound of cost of sakes the business is making �4.49 of sales. ...read more.


However, care must be taken when comparing the stock turnover ratio of different businesses, since a supermarket, for example, is likely to have much higher stock turnover. Debtor's day ratio This shows how long, on average a business takes to collect the debts owed to it by its customers who have purchased their good on credit. Formula Debtors/sales turnover x 365 Working out - 34,981/845,500 x 365 Answer = 15 days This means that on average it takes the business 15 days to collect its trade debts. This is a good sign of the business keep on track of its debtors and collecting it quickly enough. ?? ?? ?? ?? Abdulaziz Omar Unit 2 - Investigating Business Resource ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Accounting & Financial Management section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Accounting & Financial Management essays

  1. Marked by a teacher

    Business resources D1

    3 star(s)

    Another disadvantage would be that the business would find it difficult to assess and evaluate its finances then it wouldn't have a sense of direction and knowing whether it is doing good or bad. Furthermore another disadvantage would be that the business would find it challenging to create motivation among the teams due to the lack of obvious aims.

  2. Business resources P5

    For example shares, loans and retained capital(profit) Opening capital Opening capital is the money the owner of the business has invested in order to start the business. Drawing Drawing is the money which the owner took out of the business for his personal use.

  1. Investigating Business Resources Unit 2 P3

    with evidence of a wide range of management skills * details of major shareholders * details of the company's current banking arrangements and any other sources of finance Factoring Debt factoring is another method of gaining additional sources of Finance.

  2. A2 Business CourseWork

    It really does document the speed of growth of their world trading. Market share: A market share is the percentage of customers a business has in a particular market area. In Tesco's case this will be food sales but they will probably be looking closely on their market share against the other superstore chains.

  1. Assignment 4: ethical issues. The community. P4 and M3

    Regional and National Communities: Primark is a business that operates in many countries such as UK, Poland and Belgium. If one region has faced any problems or unethical trading, the whole business will be under a risk. One name represents all the branches around the world, therefore it is important

  2. Sainsbury's Ratio Analysis

    The efficiency ratios for Sainsbury's last two years also show that they are working towards managing its working capital effectively. Recommendations I would recommend investing in Sainsbury's now because they have a good profitability at the ROCE of 5.0%

  1. Financial Ratio Analysis.

    The reader of the financial statements therefore cannot have the same high level of confidence in these statements as in those using cash flow accounting. 2.2.2 'Accrual' concept The 'Accrual' or 'Matching' concept, which is described in SSAP 2 as follows: "Revenues and costs are accrued (that is, recognised as

  2. The maintenance of accurate records supplies the company with the financial data that assists ...

    Consequences of failing to keep accurate financial records: Criminal action: As mentioned earlier if the company does not succeed to keep accurate financial records, when HMRC comes and checks the accounts it business cost will increase as it will pay higher corporation tax than required.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work