Financial Ratio
Gross Profit
Operating Profit
Profit Margin
Inventory Turnover
Quick Ratio
Key Highlights
- Gross Profit Margin: The gross profit margin is a financial ratio used to evaluate a business’s profitability and operational efficiency. It takes into account the cost of goods sold, which represents the expenses incurred in producing and delivering a product or service to customers. By calculating the gross profit margin, businesses can gauge their value proposition and efficiency in managing production costs.
- Operating Profit: Operating profit, also known as operating income or operating earnings, is a financial metric that represents the profit a company generates from its core operations before considering interest and taxes. It reflects the company’s ability to manage its operating expenses and generate profits solely from its core business activities.
- Profit Margin: The profit margin is a fundamental profitability ratio calculated by dividing net income by net sales and multiplying by 100 to express it as a percentage. This ratio provides insights into how effectively a company converts its sales revenue into profits. When combined with other financial metrics, the profit margin helps assess the overall sustainability of a business model.
- Inventory Turnover: Inventory turnover is a financial ratio that measures the efficiency with which a company manages its inventory. It’s calculated by dividing the cost of goods sold by the average inventory value during a specific period. A high inventory turnover ratio suggests that a company is effectively selling its inventory and restocking efficiently, while a low ratio might indicate excess inventory or slow sales.
- Quick Ratio: The quick ratio, also known as the acid-test ratio, is a financial ratio that evaluates a company’s short-term liquidity and ability to meet immediate financial obligations. It’s calculated by dividing the sum of cash, cash equivalents, marketable securities, and accounts receivable by current liabilities. The quick ratio excludes inventory from the calculation, providing a more conservative measure of liquidity.
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