Introduction to accounting ratios



    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.


    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 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.


    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.