What are the profitability ratios?
The ratio what Aquamarine Power Limited can use is:
- Profitability Ratio. This ratio is to check how much organisation is earning money than it is paying off. Profitability ratios include gross profit ratio, profit mark – up, net profit ratio (profit for the year), return on capital (equity) employed (ROCE)
- Gross Profit Ratio. Purpose of the gross profit ratio is to measure the percentage of profit earned on the trading activities of the organisation or to measure how many pence gross profit is earned out of every £ of sales. Gross Profit is used by managers/directors to compare one year’s trading with trading in previous years or with other similar business.
Unfortunately, no realistic comment can be made unless trends are over different time periods, or comparisons are made with other, similar organisation. To improve gross profit margin, the organisation can either purchase cheaper supplies or increase the selling price to the consumer.