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Accounts and Finance
Step 7 Ratio Analysis

There are the ratios which are used to measure profitability of business

They are calculated taking into account Profit and Loss Account of business

S.no. Ratio Name Formula Ideal Ratio        What is better     Remarks
1 Gross Profit Ratio Gross Profit / Net Sales Depend upon Business to Business Higher the better Net Sales = Sales Direct Income - Sales Return
2 Net Profit Ratio Net Profit / Net Sales Depend upon Business to Business Higher the better

Net Profit can be PBT or PAT   ….

Net Sales = Sales Direct Income - Sales Return

3 Operating Profit Ratio Operating  Profit before interest / Net Sales Depend upon Business to Business Higher the better Operating Profit = EBIT(PROFIT+INTEREST EXP + TAX - INT INCOME)

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CA Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 12 years. He also provides Accounts Tax GST Training in Delhi, Kerala and online.