Ratio analysis is all about comparing one figure to another. Ratio analysis also allows inter-firm and intrafirm comparisons.

by humzah2013hotmailcom (student)

P5

In this task I have been asked to perform a ratio analysis to measure the profitability, liquidity and efficiency if future fashion.

Ratio analysis is all about comparing one figure to another. Ratio analysis also allows inter-firm and intrafirm comparisons. Inter-firm is comparing between two different firms. And intrafirm is comparing within the firm for example lat years profit sheet and this years profit sheet.  Ratio will be used by people in future fashion such as managers and employees these are known as internal stakeholders.

Profitability

Profitability is a measure of the profit of a firm in a relation to another profitability, also profitability is comparing one figure to another therefore future fashion will do this to ding out the profitability of their profits.

Gross profit percentage of sales

The formula for gross profit is calculated using the following formula:

Gross profit

X3

Sales turnover

This ratio looks at gross profit as a percentage of sales turnovers this ratio is often referred to as the gross profit margin. If gross profit margins falls from one year to the next or is thought to be too low future fashion may try to reduce the costs of its purchases. This may involve looking for a cheaper supplier but future fashion must try and ensure that this does not affect the quality of their products. Then again it may try to increase sales without increasing the cost of goods sold.

Net profit percentage of sales

Net profit is calculated using the following formula:

Net profit

X3

Sales turnover       ...