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I will be illustrating the financial state of SR building by different ratios. The ratios which Ill be using are net profit, gross profit, return on capital employed, asset turnover, current ratio, acid test ratio, stock turnover, debtor days,

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Introduction

TREVON MENGOT UNIT 2 BUSINESS RESOURCES P7 In this assignment I will be illustrating the financial state of SR building by different ratios. The ratios which I?ll be using are net profit, gross profit, return on capital employed, asset turnover, current ratio, acid test ratio, stock turnover, debtor days, the debt over equity and creditor ratio. SR building services Ltd Trading and profit and loss account Sales 650,000 Less cost of sales (390,000) Gross Profit 260,000 Less Expense Wages 60,000 Rent and rates 55,000 Light and Heating 18,000 Advertising 12,000 Insurances 11,000 Directors? Salaries 27,000 Sundry Expenses 12,000 195,000 Net Profit 65,000 SR Building Services Ltd Balance Sheet as at 31st December 2006 Fixed Assets 120,000 Current Assets Stock 100,000 ...read more.

Middle

It is also used to calculate the amount of sales a business has made which is then turned into the gross profit. Formula of gross profit ratio: gross profit divided by sales and multiplied by 100. 260,000÷650,000x100=40% Return Capital employed: money invested in the running of the business. this is used to find the amount of the net profit and how many times it covers the capital put into the business. Return on capital employed ratio: net profit divided by Capital employed x 100 Net profit: this is achieved when the business has paid all their expenditures and costs made by the business and it is used to calculate the amount of sales which was made. ...read more.

Conclusion

Formula: stock divided by cost of sales x 365 days. 100,000÷390,000×365 = 94 times Acid test ratio shows if the business has enough short term assets to cover its expenses without selling any properties owned by the business. Formula: current asset – stock divided by current liabilities. 135,000-35,000÷95,000 =1.1 Debtor day ratio it measures how long a business would take to pay off their debts through the year. Formula: debtors divided by sales x 365 days 35,000÷650,000×365 = 19 days Creditor day ratio measures how long the business would take to collect their debts through the year. Formula: creditors divided by purchases x 365 days 36,000÷390,000×365 = 33 days Debt over equity measures how the business controls their financial state which is calculated by dividing long term liabilities by the equity. 58,000÷105,000 = 0.5 ...read more.

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