Introduction to accounting ratios

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    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.

    MARGIN

    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

    = 25%

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

    MANAGER’S COMMISSION

    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.