3 important P&L ratios

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There are many ratios that you can discern from the P&L statement of a company. Here are three important ratios.

Transcript

3 Important P&L Ratios Let’s take a quick look at 3 important profit and loss accounting ratios. First, we have the gross profit ratio. This ratio is calculated as follows: gross profit, divided by net sales, multiplied by 100 It reflects the efficiency with which a firm produces or delivers its products or services. Then, we have the net profit ratio. This ratio is calculated as follows: net profit, divided by net sales, multiplied by 100 It measures the overall profitability of the business Lastly, let’s look at the operating ratio. It is the sum of the cost of goods sold and the operating expenses, divided by net sales, and multiplied by 100. It is used to determine the efficiency of a company's management. These ratios form an important part of fundamental analysis. Now, it’s time to get to know the balance sheet of a company a little better. Head to the next chapter of Smart Money to know more.