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  • Profitability ratios are also known as ‘Income Ratios’. They analyse the earning capacity of the business.
  • Gross profit ratio shows the relationship between gross profit and net revenue from operations. Higher the ratio better it is.
  • Net profit ratio shows relationship between Net profit and revenue from operations. This ratio shows overall efficiency of the business and checks operational efficiency of the business.
  • Operating ratio shows relationship between operating cost and net revenue from operations. It helps in determining increase or decrease in cost as compared to revenue from operations. Operating profit ratio shows relationship between operating profit and revenue from operations. Higher the ratio better it is.
  • Return on investment measures overall efficiency of the business. Return on Investment Measures overall efficiency of the business.
  • Earning per share establishes relationship between net profit and number of equity shares.
  • Price earning ratio establishes relationship between current market price per equity share and earning per share.
  • Dividend per share establishes relationship between Equity dividend and Number of Equity Shares.
  • Activity or Turnover Ratio measures how well facilities at the disposal of concern are being utilised.
  • Inventory Turnover Ratio shows efficiency with which inventory is converted  into revenue from operations. Higher the ratio better it is.
  • Working Capital Turnover ratio shows how effectively the working capital has been utilised in making revenue from operations.
  • Trade ReceivablesTurnover Ratio shows relationship between credit revenue from operations and average trade receivables. Average collection period shows the average period for which credit sales remain outstanding.
  • Trade Payables turnover Ratio indicates relationship between net credit purchases and average trade payables. Average payment period shows the period which is normally taken by the firm to make payment to its trade payables.
  • Fixed assets turnover ratio indicates the relationship between net revenue from operations and net fixed assets.
  • Current assets turnover ratio indicates the relationship between Net revenue from operations and Current assets.

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