Chapter 17, Problem 17SP

To determine

Ratio analysis is used to analyze financial and operating performance of a company. Basically it is a quantitative analysis of data and information contained in the financial statement.

Gross margin ratio indicates that how much profit company has earned after its cost of goods sold. In percentage terms it is calculated gross profit divided by total revenue.

Net Margin ratio indicates that how much Profit Company has earned after all its operating expenses, finance cost and non-cash items. Basically, it is net earnings after all incomes and expenses.

Current ratios show the liquidity position of the company. It reflects company’s ability to pay off the short term liabilities from short term/ current assets.

Acid test ratio is also known as Quick ratio. It highlights the short term liquidity and solvency of the company. Basically, only liquid current assets are considered for calculation of this ratio.

Debt ratio is a financial ratio that depicts the leverage position i.e. it shows the total debt proportion to the total assets.

Equity ratio measures the total equity proportion to the total assets i.e. how much is the contribution of equity shareholders in total assets.

To calculate:

In the given question, we have to calculate the below ratios:

1. Gross margin ratio and net profit margin ratio ( with and without service revenue) in percentage terms for profitability analysis
2. Current ratio and acid test ratio to measure the liquidity and solvency
3. Debt ratio and equity ratio to measure leverage position
4. Percentage of current and long term assets in total assets