# Ratios P5 M2 D2

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Ratios P5 M2 D2
Unit 5: Business Accounting Amy Doherty
P5, M2, D2
1.0 Introduction
In this report I am going to be analysing the profitability, efficiency and liquidity of SIGNature Ltd. As shown by their accounts for the year ended 31 January 2010. Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. Ratio analysis is good because it helps to compare current performance with previous records and it also helps monitor and identify issues that can be highlighted and resolved. However, there are some limitations with ratio analysis. For example it only includes numerical data, and no other sources of information which will explain more things which can be more understandable.
2.0 Ratio Report
Profitability – This can be described as “a class of financial metrics that are used to assess a business's ability to generate earnings as compared to its expenses and other relevant costs incurred during a specific period of time.”1
Gross Profit Percentage of Sales;
Gross profit percentage shows you how much gross profit you have made from the sales compared to how much the business has spent on making them.
Formula - (Gross Profit/Sales Revenue) x 100
£256,200/£444,000 x 100 = 57.7%
This shows that the business is doing very well for their first year. Most businesses don’t make a good profit in the first year. By comparing the profitability ratios to the net profit they can work out their expenses and they can compare their profit ratios to the next year which will show them if they’re buying the right products.
Net Profit Percentage of Sales;

Net profit percentages shows the amount of net profit that you have made from sales after the taxes and expenses have been taken away.

Formula - (Operating Profit/Sales Revenue) x 100

£96,160/£444,000 x 100 = 21.6%
This is positive because they have kept a profit. They have done well to keep their profit and they will know

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