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