The Gross Profit Margin Ratio

1880 Words8 Pages
The Gross profit margin ratio is a measure of profitability concerned with the effectiveness of generating profit. It represent the relation between the gross profit and the sales revenue generate in the same period (McLaney and Atrill, 2012). The higher of this ratio is better for the company. The Dixons´ gross profit margin is virtually the same in both years, 2013 is 7,32% and 2014 is 7,47%. However, it is too low to compare with the industry average ratio (15%). It should be as a consequence of the high cost of sales. Reducing the cost of the goods sold is an immediately measure that the company must implemented. Additionally, increasing the price of the product should be another alternative. These changes will reflect positively in the profit of the year leading to a higher gross profit margin. The current ratio is a measure of liquidity, which is concerned with the ability of the company to meet its short-term financial obligations. It relates the current assets and the current liabilities of a business the higher the ratio means that the business have more liquidity and quickly response to financial obligations, however is not recommended to be too high (McLaney and Atrill, 2012). The Dixons´ current ratios in both year are significantly lower than the industry average which is 2.05 times, in 2013 is 0.89 and during 2014 is 0.93. These results lower than 1, is an evidence of a problem in the liquidity of the company and the difficult for Dixon to meet its
Open Document