Definition of Net Profit Gross Profit Current Ratios

Hello friends today we talk about few important Net Profit Gross Profit Current Ratios. With the help of these ratio analysis you can easily take decision about the performance of any particular company and also compare your performance with other companies also. These ratios are distributed into different categories. There are few important ratios definition with formula is given below. Have a look.

Definition and formula of Net Profit Gross Profit Current Ratios :

Definition of Net Profit (NP) Ratio:

NP stands for Net Profit Ratio. It is used to measure the overall profitability and hence it is very useful proprietors. Profit margin is very useful when comparing companies in similar industries. A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. The net profit percentage is the ratio of after-tax profits to net sales. It reveals the remaining profit after all costs of production, administration, and financing have been deducted from sales, and income taxes recognized.

Formula of Net Profit Ratio:

Net Profit = Gross Profit – Operating Expenses+ Non-Operating Incomes
– Non Operating Expenses

Operating Expenses = Selling Expenses + Office Expenses+ Distribution Expenses
+ Administrative Expenses

Must Read: Ratio Analysis Meaning and Formula

Definition of Gross Profit (GP) Ratio:

Gross Profit (GP) Ratio. Gross profit is a company profit after selling a product or service and deducting the cost associated with its manufacturing and selling your good and services. Net profit is the money left after you deduct the all cost of item.

Formula of Gross Profit Ratio:

Gross Profit = Net Sales – Cost of Goods Sold

Net Sales = Total Sales – Sales Return

Total Sales = Cash Sales + Credit Sales

Cost of Goods Sold = Opening Stock + Purchases + Direct Expenses
– Purchase Return – Closing Stock

Definition of Current or Liquidity or Working Capital Ratio

Current ratio, also known as liquidity ratio and working capital ratio, shows the proportion of current assets of a business in relation to its current liabilities.

Formula of Current Ratio/ Liquidity Ratio/ Working Capital Ratio:
Current Ratio = Current Assets/Current Liabilities

Explanation: Current ratio expresses the extent to which the current liabilities of a business (i.e. liabilities due to be settled within 12 months) are covered by its current assets (i.e. assets expected to be realized within 12 months). A current ratio of 2 would mean that current assets are sufficient to cover for twice the amount of a company’s short-term liabilities.

Must Read: What is the Meaning and Format of Final Statements?

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