FINANCIAL RATIO’S DEFINITIONS

Use these ratios to gauge your solvency, liquidity, operational efficiency and profitability. They are
also useful measures to compare your business with others in your industry.

Profitability Ratio’s

Gross profit margin Formula: Gross profit / Sales

This important ratio measures your profitability at the most basic level. Your total gross profit total
(which is Net Sales – COGS) compared to your net sales. A ratio less than one means you are selling
your product for less than it costs to produce. If this ratio remains less than one, you will not achieve
profitability regardless of your volume or the efficiency of the rest of your business.