Scribd
Upload
2 views13 pages

Group-8 Computation of Gross Profit

The document outlines the computation of gross profit for XYZ Trading, highlighting a gross profit rate of 21.39% and an operating profit margin that indicates a net income of P67,000. It discusses the importance of gross profit in assessing business competitiveness and includes liquidity ratios for evaluating short-term obligations. Additionally, it mentions assumptions of a 5% yearly increase in revenue and costs.

Uploaded by

cyrilsescon7
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
2 views13 pages

Group-8 Computation of Gross Profit

The document outlines the computation of gross profit for XYZ Trading, highlighting a gross profit rate of 21.39% and an operating profit margin that indicates a net income of P67,000. It discusses the importance of gross profit in assessing business competitiveness and includes liquidity ratios for evaluating short-term obligations. Additionally, it mentions assumptions of a 5% yearly increase in revenue and costs.

Uploaded by

cyrilsescon7
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 13

COMPUTATION OF

GROSS PROFIT
Group 8
reallygreatsite.com
The amount of gross profit provides information to
the entrepreneur about revenue earned from sales.
Profit is the gross income. The amount of gross profit provides
information to the entrepreneur about revenue earned from sales.
The term cost refers to the purchase price of the product
including the total outlay required in producing it.
The gross profit rate may signal to the entrepreneur that the amount of
margin on sales is 21.39%. This rate will be used to determine whether the
amount of gross profit can cover the operating of the business. Since the
gross profit rate of XYZ Trading is 21.39%, the cost ratio to sales will be
78.61%. This information will help the entrepreneur in assessing whether the
cost is too high or too low. Any product with a very high cost will not
become competitive in the market.

The operating profit margin is the excess of gross profit from operating.
The operating profit margin is the second level of revenue in
the income statement. At this stage, not only is the cost of
buying or making the product that has been deducted is
included but also the operating expenses.

In case there are no financing charges like interest, expenses,


and income tax, the amount of the operating profit margin is
equal to the net income.
This information states that the business realized an income of P
67,000.00 during the year after deducting the cost and operating
expenses from the sales made.

The operating profit margin of the business measures the percentage


of profit available after deducting the cost of sales and operating
expenses of the business. A higher operating profit margin is
favorable to the business.
The income statement is the net profit margin and the third level in the
revenue. The business is only given consideration like interest expense and
income tax.
The income statement of XYZ Trading does not reflect any data on
interest expense. Only income tax has been deducted from the operating
profit margin.

XYZ Trading appears to have earned 6.39% of its total sales of P734,000
during the year. This profits rate must be compared with those of other
similar businesses within the industry.
Analyzing the Liquidity Status of the Business

Liquidity Ratios
Current Ratio = Current assets / Current Liabilities
Quick Ratio = (Current Assets – Inventories) / Current Liabilities
Current liabilities= (Cash and Equivalents + Marketable Securities +
Accounts Receivable)

The quick ratio measures its short-term obligations with


its most liquid assets and therefore excludes
inventories from its current assets.
Return of Investment (ROI)
The Return of investment (ROI) measures the amount of net income
per peso invested to the business.
Yearly increase in revenue is assumed at 5%
Yearly increase in cost is assumed at 5%
THANK YOU

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy