GROSS PROFIT MARGIN & THE LIQUID CAPITAL RATIO



right guys so let's now have a look at the gross profit margin so within this paper we've got the statement of comprehensive income here for this pet boutique firm and it's just asking us to do this nice straightforward calculation question so have a go at that now and pause the video right so let's now run through this so of course to work out our gross profit margin we've got to do gross profit divided by our sales revenue and we've got those figures right here of course so let's put that through and then you multiply through by a hundred so the figures that we get out of this course then translate to twenty two thousand five hundred and twelve and that gets divided by thirty one thousand two hundred we then multiply through by a hundred and as we do so well we get a what seventy two percent gross profit margin okay which is very very healthy margin that this business is making on the revenue minus the cost of sales or cost of goods sold let's now move it on to our liquid capital ratio so to that one of course we need to use the statement of financial position so we can just see that here so again pause the video if you want to have a go at this right now so when it comes to this course this is more severe test of liquidity to make sure that the business can actually afford to cover its day-to-day debts so we've got our inventory that is of course the least liquid current asset that the business actually has that's why it's at the top cash mean Wireless of course the most liquid that's why it's at the bottom there so what we've then got to do is take our current assets minus the inventory and then divide that by our current liabilities position so let's then do this so we've got a total current assets position seven thousand seven hundred and ninety six – the 2,496 which we then divide by five thousand eight hundred and twenty four now this then translates to a point nine one-to-one ratio that is between these more liquid current assets and current liabilities position okay so they've got ninety one p to cover every 1 pound of current liabilities okay so that's ninety one p of current liquid assets okay so that is without selling any stock great stuff

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