Analysis of accounts

Gross Profit Margin = (Gross Profit / Revenue) x 100. It indicates the percentage of revenue remaining after deducting the cost of goods sold, showing how efficiently a business manages its production costs.

A high net profit margin signifies that a company is effectively controlling its expenses and generating substantial profit from its sales after accounting for all costs. This indicates strong overall business performance.

ROCE = (Net Profit / Capital Employed) x 100. It measures how efficiently a company is using its capital to generate profit. A higher ROCE suggests better investment returns.

The Current Ratio measures a company's ability to pay short-term liabilities with its current assets. Calculated as Current Assets / Current Liabilities, a ratio above 1 generally indicates good liquidity.

The Acid Test Ratio (Quick Ratio) = (Current Assets - Inventory) / Current Liabilities. It provides a more stringent measure of liquidity by excluding inventory, which may not be easily converted to cash.

A current ratio of 0.8 suggests the company may struggle to meet its short-term obligations as it has less current assets than liabilities. Management might try to improve it by reducing inventory, increasing cash or negotiating extended payment terms with suppliers.

A very high current ratio might indicate that a company is not efficiently using its assets. It could suggest that the company is holding too much cash, or inventory, instead of investing in more profitable ventures.

Profitability ratios measure a company's ability to generate profits from its sales and assets. Liquidity ratios, on the other hand, assess a company's ability to meet its short-term financial obligations.