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Business Studies IGCSEPDF 160
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1. Gross Profit Margin = (Gross Profit / Revenue) × 100
2. Net Profit Margin = (Net Profit / Revenue) × 100
Low profitability → high costs or low sales.
Low liquidity → difficulty in paying short-term debts.
● Working Capital = Current Assets – Current Liabilities
● Net Assets = Total Assets – Total Liabilities
Importance: shows liquidity, solvency, and business health.
Internal users: managers, employees.
External users: investors, banks, government, suppliers.
They use financial data to:
● Compare performance (year-to-year or with competitors).
● Make decisions on investment, expansion, or cost control.
Current Ratio = Current Assets ÷ Current Liabilities
○ Ideal: around 2:1
Acid-Test Ratio = (Current Assets – Inventory) ÷ Current Liabilities
○ Ideal: around 1:1
5.5 Financial Ratios
Profitability Ratios
5.6 Using Accounts for Decision-Making
Interpretation:
Liquidity Ratios