Question 1 Introduction
The current ratio (also known as the working capital ratio, which assesses the liquidity of a business, is calculated by dividing current assets by current liabilities.
The main function of ratio analysis in accounting is to assess the profitability, liquidity efficiency and capital structure of a business.
Gross profit percentage is calculated by dividing gross profit by cost of sales and multiplying by 100.
Profit in relation to revenue, which measures profitability after the deduction of expenses, is calculated by dividing profit before tax by revenue and multiplying by 100.
For a sole trader return on capital employed as a percentage is calculated by dividing gross profit by capital employed and multiplying by 100.
The current ratio (also known as the working capital ratio, which assesses the liquidity of a business, is calculated by dividing current assets by current liabilities.
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