Check sibling questions
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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Davneet Singh

Davneet Singh is a graduate from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths and Science at Teachoo.