# accounting ratios

1-  Gross profit percentage =  gross profit ÷  sales × 100%
2014:24,000 ÷64,000× 100% = 37.5%
2015:32,400 ÷108,000× 100% = 30%
2-  Current ratio = current asset ÷ current liabilities
2014:23,900 ÷14,200 = 1.68 : 1 times
2015:31,000 ÷20,400 = 1.52 : 1 times
3-  Quick  ratio = (current asset – inventories) ÷ current liabilities
2014:(23,900 –12,000) ÷14,200 = 0.84 : 1 times
2015:(31,000 –15,000) ÷20,400 =  0.78 : 1 times
4-  Debtors collection period = trade Debtors  ÷ credit sales × 365
2014:10,500 ÷64,000×365= 60 days
2015:14,000 ÷108,000× 365 = 47 days
5-  creditors payment period = trade creditors  ÷ *credit purchase × 365
2014:6,800 ÷*42,000 ×365= 59 days
2015:9,400 ÷*78,600× 365 = 44 days
*purchase = Cost of sales + (closing inventory – opining inventory)
2014: 40,000 + (12,000 – 10,000) = *42,000
2015:75,600 + (15,000 – 12,000) = *78,600
6-  Gearing ratio = debt ÷ ( debt + equity ) ×  100%
2014:60,000 ÷ (60,000  + 26,000 ) ×  100% = 70%
2015:  60,000 ÷ (60,000  + 49,000) ×  100% = 55%
required :-  based on the above  accountin ratios , answer the following question ?  1- Explain what you can deduce from the ratios as at 31 December 2015 andfrom comparing them with those for 2014. ( comment on accounting ratios ) 2- State two points which could cause the movement in the gross profitpercentages between the two years and explain how they could bring thechange about. 3- State the extent to which you agree or disagree with the following and givebrief reasons for your answers:- a) The current ratio and the quick ratio help to assess whether a company isable to meet its debts as they fall due. Therefore the higher these ratios arethe better placed the company is.b) A high gearing ratio is advantageous to shareholders, because they benefitfrom the income produced by investing the money borrowed.

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