Acid test ratio formulae:
Acid test ratio = Current assets – Stock / Current liabilities
Domestic Dog Home Acid test ratio:
1.46 = 40275 – 16300 / 16367
Profitability Equation
Gross Profit Percentage
To work out the Gross profit percentage you have to divide the gross profit with the turnover and multiply it by 100. The Gross Profit Percentage shows how well the business is managing its spending on stock.
Gross profit percentage formulae:
Gross profit percentage = Gross profit / Turnover x 100
Domestic Dog Home Gross profit percentage:
42% = 102250 / 244600 x 100
Net Profit Percentage
To work out the Net Profit Percentage you have to divide the Net profit with the turnover and multiply it by 100. The Net profit percentage shows the profit as a percentage of turnover after all expenses have been taken out.
Net profit percentage formulae:
Net profit percentage = Net profit / Turnover x 100
Domestic Dog Home Net profit percentage:
18% = 42850 / 244600 x 100
Return on capital employed (ROCE)
To work out the return on capital employed you have to divide the net profit with capital employed (including shareholder funds) and multiply it by 100. The purpose of this ratio is to show to money an investor is receiving back on capital as a percentage.
ROCE formulae:
ROCE = Net profit / Capital employed x 100
Domestic Dog Home ROCE:
30% = 42850 / 142408 x 100
Performance Equation
Performance ratios are used by businesses to determine performance.
Stock Turnover
There are two ways to work out the stock turnover. 1) To work out the stock turnover you divide the cost of sales with average stock (number of times). 2) To work out stock turnover (days) you divide average stock with cost of sales and then multiply it with 365.
Stock turnover formulae:
1) Cost of sales / Average stock (number of times) = Stock Turnover
2) Average stock / Cost of sales x 365 = Stock Turnover (days)
Debtor’s Collection Period
This ratio looks at the link between number of debtors and how long the average it takes the business to collect its debts. To work out the total number of days it takes to pay debtors you have to divide the debtors with the credit sales and multiply it by 365.
Debtor’s Collection Period formulae:
Debtor’s / Credit sales x 365 = Total number of days it takes to pay debtor’s.
Domestic Dog Home Debtor collection period:
23850 / 244600 x 365 = 37
Assets Turnover
This ratio looks at the total assets that a business owns. To work out the Assets turnover you have to divide sales with total assets.
Assets turnover formulae:
Sales / Total Assets = Asset Turnover
Domestic Dog Home Asset turnover:
250000 / 191775 = 1.30
This can be broken down further into:
Sales / Fixed Assets and Sales / Current Assets
The fixed asset turnover shows how much the business has invested in land and buildings. The current asset turnover shows how many sales are produced per £ of current assets.
