Important financial ratios in accounting
Session 1
Financial ratios of the statement of performance and profit and loss
Ratio of return from sales to non-net sales
There are different costs for selling goods. These costs include spending time, advertising costs, shipping costs, and some administrative and organizational costs. So returning from sales means paying these costs without making sales and making a profit.
Ratio of return from sales and discounts to non-net sales = return from sales and discounts/non-net sales *100
The smallness of this ratio compared to the ratio of the index and the norm of the economic environment is favorable and a sign of the efficiency of the sales managers of the collection. This ratio is expressed as a percentage.
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The ratio of cost of goods sold to net sales
This ratio is also expressed as a percentage. The greater the difference between the cost of goods sold and net sales, the greater the profit from the sale of goods and the smaller this ratio.
The ratio of the cost of goods sold to net sales = cost of goods sold / net sales * 100
Companies and commercial institutions try to make this ratio as small as possible.
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The ratio of retained earnings to net sales
The result of subtracting the cost of goods sold from net sales is the non-special profit of commercial institutions.
EBIT = cost of goods sold – net sales
So, if we subtract the ratio of the cost of goods sold to net sales from 100%, the ratio of non-special profit to net sales is obtained.
The ratio of unspecialized profit to net sales = 100% – cost of goods sold/net sales
If you have both the unreserved profit and the net sales, the desired ratio can be calculated as follows:
The ratio of retained earnings to net sales = retained earnings / net sales * 100
The larger ratio is desirable according to managers and company owners.
The ratio of special profit for the financial period to net sales
The magnitude of this ratio, which is expressed as a percentage, is considered to be a sign of the efficiency and merit of the institution’s managers, as well as the efficiency of the institution’s sales and commercial department.
The ratio of special profit to net sales = special profit/net sales *100
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Return ratio from purchase to non-net purchase
The ratio of returns from purchases and discounts to non-net purchases = returns from purchases and discounts/non-net purchases*100
The largeness of this ratio is not desirable, because it indicates that the expenses spent on the purchase of goods did not bring the desired result, which is buying and then selling the goods and making a profit.
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The ratio of the shipping cost of purchased goods to non-net purchases
The ratio of shipping costs of purchased goods to non-net purchase = shipping cost of purchased goods / non-net purchase * 100
Generally, the cost of transporting the purchased goods is one of the most important items in the purchase price. Therefore, commercial institutions will try to reduce this cost as much as possible, and the smaller this ratio is, the better it will be according to the conditions.
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