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Profitability ratios
The primary objective of a business under taking is to earn profits. Profit earning is considered necessary for the survival of the business. A business requires profit not only for its existence but also for diversification and expansion. Profits are thus a useful measure of overall efficiency of a business. profits to the management are the test of effectiveness and a measurement of control: to owners a measure of worth of their investment a measure of tax paying capacity and the basis of legislative action to customers source of finance for growth and existence and finally to the country profits are an index of economic progress profitability ratios are calculation to measure the overall efficiency of the business.
Explain TWO limitations of using accounting ratios to assess the performance of a firm and suggest how each limitation may be improved
Explain Profitability ratios in relation to sales a) Gross profit ratio b) Net profit ratio c) Operating ratio d) Operating profit ratio e) Expenses ratio
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Cost concept . techniques of costing . absorption costing
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