# O Level Notes : Accounts - Introduction to accounting ratios

## Ratio is a comparison between two different items, First is MARK UP and Second is MARGIN.

Introduction to accounting ratios

Ratio is a comparison between two different items

MARK UP :

When shown as the  fraction or percentage of cost price gross profit is known as mark up.

e.g cost of manufacturing a mobile : \$2000

profit :                                     \$1000

profit percentage 1000/2000 x 100 = 50%. This is called mark up.

MARGIN

When shown as the fraction of selling price , gross profit is known as margin.

e.g selling price of a mobile = \$4000

gross profit = \$1000

margin = 1000/4000 X 100

= 25%

Usually manufacturing firms use mark up and trading firms use margin in their calculations.

MANAGER’S COMMISSION

Manager’s commission is always given on net profit.

Formula :              net profit before commission x % of commission

100 + % of commission

This is the method for calculating commission, otherwise we know that it is recorded in expense account.

STOCK TURN OVER:

The number of times stock is sold in an accounting period. Or the number of times your stock is converted into sales within a specific period.