Explain the illustrate the following ratios
a. Current ratio.
b. Gross profit ratio.
c. Stock turnover ratio.
d. Average collection period.
Answers
A.Answer: Current ratio (also known as working capital ratio) is a popular tool to evaluate short-term solvency position of a business. ... The current ratio is 2.75 which means the company's currents assets are 2.75 times more than its current liabilities.B.The gross profit margin is the percentage of the company's revenue that exceeds its cost of goods sold. It measures the ability of a company to generate revenue from the costs involved in the production. The gross profit margin is calculated by subtracting the cost of goods sold (COGS) from revenue.C.Inventory turnover ratio or stock turnover ratio indicates the relationship between “cost of goods sold” and “average inventory”. It indicates how efficiently the firm's investment in inventories is converted to sales and thus depicts the inventory management skills of the organization.D.The average collection period represents the average number of days between the date a credit sale is made and the date the purchaser pays for that sale. A company's average collection period is indicative of the effectiveness of its accounts receivable management practices.