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Business Studies IGCSEPDF 25
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Owner’s equity (capital employed):
The total amount invested in the business by the owners.
Formula:
Capital employed = Non-current liabilities + Owner’s equity
Working capital:
The funds available to meet day-to-day expenses.
Formula:
Working capital = Current assets − Current liabilities
Liquidity:
The ability of a business to pay its short-term debts.
Profitability ratio:
A financial measure that shows how efficiently a business makes profit.
Gross profit margin:
Percentage of revenue left after deducting cost of sales.
Formula:
Gross profit margin = Gross profit/revenue x 100
Net profit margin:
Percentage of revenue left after all expenses.
Formula:
Net profit margin = Net profit/revenue ×100
Return on capital employed (ROCE):
Shows how efficiently a business uses capital to generate profit.
Formula:
ROCE = Net profit/ Capital employed ×100
Liquidity ratio:
A measure of a business’s ability to pay short-term debts.
Current ratio:
Compares current assets to current liabilities.
Formula:
Current ratio = Current assets/ Current liabilities
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