The Gross Profit Margin Ratio

The gross profit margin measures the amount of profits that a company generates from its operations without consideration of its indirect costs. Thehigher thegross profit margin, the greater the efficiency of a company’s operations (Besley & Brigham 2007). It means that the company is generating enough income to cover its operating expenses. On the contrary, a lower gross profit margin indicates that the business is not generating adequate income to cover its operating expenses.

This ratio indicates a company’s liquidity. It depicts how many dollars of current assets exist for every dollar in current liabilities. The ratio is the higher, the better. Home Depot and Lowe’s has increasing current ratio while Home Depot has a slightly higher one.

Current Ratio: Current ratio helps the company assess its ability to use assets like cash, accounts receivable, inventory and the ability to pay short term liabilities as the accounts payable and wages. The ratio can be found by dividing the current assets /the current liabilities. Year 12 shows a ratio of 1.78 with year 11 a ratio of 1.86. Year 12 is down from year 11. The industry is 2.1 so year 12 has declined from the previous year and is near the lower quartile which means there is a weakness. There is a showing of declining trending.

Gross profit is defined as the difference between Sales and Cost of Sales. The gross margin (or gross profit ratio) expresses the gross profit as a proportion of net sales. The gross profit margin ratio measures how efficiently a company uses its resources, materials, and labour in the production process by showing the percentage of net sales remaining after subtracting the cost of making and selling a product or service. It indicates the profitability of a business before overhead costs. The higher the percentage, the more the business retains of each dollar of sales. So: the higher the gross profit margin ratio, the better.

Obligations involving current liabilities can be evaluated using either the current ratio or quick ratio. The current ratio measures a firms capacity to meet its current liability obligations alongside its current assets, (Horngren et al, 2013, p. 801). Harry Jones current ratio has declined slightly from 2.24 times in 2014 to 2.22 times in 2015. Both figures are above the industry average of 1.80 times and is indicative of the business having sufficient current assets to both cover for any current liabilities and maintain the business in operation, (Horngren, 2013, p. 803).

Liquidity ratios measure the business ability to pay all its short-term debts, it can be divided into current ratio and the acid test ratios. Current ratio examines the liquidity position of a firm, an ideal current ratio would be 1.5 : 1. The Acid Test Ratio provides us a tighter measure of a firm’s liquidity, by comparing current assets and liabilities after omitting stock from the total current assets. The ideal result for this ratio should be 1:1. These two ratios focus on the business financial stability on the short term only.

Liquidity ratios are the measure of a company’s ability to meet its short term liabilities by converting its assets into cash without losing value. The results of the liquidity ratios depend on the outcome of Current ratio and quick ratio. In the appendix-I, in 2011 Target had better Current ratio

Profitability ratios show a company's overall efficiency and performance. To measure the profitability of Polish Fine Foods I will use 3 ratios. First ratio is gross profit margin. The gross profit margin looks at cost of goods sold as a percentage of sales. This ratio looks at how well a company controls the cost of its account and the manufacturing of its products. The larger the gross profit margin, the better for the company. To calculate the gross profit margin I need to divide the gross profit by the sales and then time it by 100 to find the percentage. So, to find the gross profit margin for Polish Fine Foods I have to divide £45900 by £145400 and this would give me the answer £0.3156. To find out the percentage, I now need to multiply it by 100 and the answer is 32%. The gross profit margin for Polish Fine Foods is used to compare how much value is added to an item in between being bought in as stock or materials and being sold by the business. A low gross profit margin could show that there are high stock costs or maybe that retail price is being too low. If the business has a high gross profit margin then

Current ratio is type of liquidity ratio. It is a financial tool used to measure a company’s ability to pay off its short-term debts with its short-term assets. A company’s current ratio is expressed by dividing its current assets by its current liabilities. A higher current ratio means the company is more capable of paying off its debts. If the current ratio is under one, this suggests the company is unable to pay off its obligations if they were due at that point (Investopedia, 2013). Companies that have trouble collecting money for its receivables or have long inventory turnovers can run into liquidity problems because they are unable to lessen their obligations.

Gross profit margin ratio will define an organizations financial health by revealing the proportion of money left over from revenues after accounting for the cost of goods sold (Investopedia). The gross profit margin literally measures how much of every dollar of sales a company is able to actually keep (Answers, 2009).

Liquidity In analyzing liquidity of the company, the current ratio is not very telling of a falling company. The company increased its ratio throughout the period of the income statement thus building upon its company assets and allowing for a 6-1 ratio of assets over its liabilities. This implies the company is still able to operate sufficiently even though it did not make its optimum current ratio of about 8-1. However, when one takes the inventory out of the equation with the quick ratio, the numbers show the true strength of short term liquidity. The numbers are still good, and do not indicate failure – but are

Gross Profit Margins is a financial ratio which for evaluating a company's core activities of profits. The gross profit Margins has remained relatively static over the three year period, but a little decline in 2007 Gross profit margins is 20.3 but in 2009 became 17.2 it means the 2009 cost will be higher than 2007 cost, the devaluation of the pound is the major reasons, because the sales was risen in this years, the cost also risen.

The gross profit margin of the comany shows on the year 2014 -19-48, in 2013 - 17.38 , and in the year 2012 - 18.39. The grossprofit of the company has improved in the year 2014 compared to others.

CURRENT RATIO show a company’s ability to pay its current obligations that is company’s liquidity. The current ratio position is lower for Honda at 0.33 than for Toyota at 1.22 in 2010. Honda has a large portion of receivables in assets both in trade, notes receivables and finance receivables. It has a huge portion of cash as well. This indicates the company has no problem in terms of generating a positive influx of assets. But in terms of liabilities it has a large portion of short term debt which makes almost 1/3rd of total Current liabilities. Also there is a significant portion of Long Term debt. The higher level of liabilities in the denominator reduces the overall ratio.

Current Ratio is the relationship between a company’s current assets and current liabilities. This form of liquidity ratio also shows if the company can pay its current liabilities. A company’s current ratio can be formulated by dividing the current assets by the current liabilities. In 2016, Starbucks had a ratio of 1.05, which shows that the company has 5% cash and assets that could cover all current liabilities, thus it should not have any problems paying its current liabilities.