Question

What will be the effect of purchase of goods for cash ₹3000 on gross profit ratio

Answer 1

The gross profit ratio refers to the relationship between the gross profits of the business and the total net sales revenue. It will help the business in understanding and evaluate the operational performance of the business.

Explanation:

• The purchase of goods denotes a decrease in cash. An increment in cash refers to an increase in the gross margins on the business. But, here the cash in reducing denoting a constant or a declining in the gross margin which will reduce the GPR.

• The GPR (Gross profit ratio) will have reduced ratio which will be less than the ideal gross profit ratio which is 2:1 which says that the firm should do more cost cutting and have efficient work done.

To know more:

What is gross profit ratio? ​

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What is the formula of gross profit ratio?​

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