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Simple questions on Five ratios

Simple questions on Five ratios. Ted Mitchell. #1. Your normal return on sales is ROS =20%. Your sales revenue increased by $100. What was the increase in your net profits? Net Profit = ROS x Revenue Net profit = 20% x $100 = $20. #2.

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Simple questions on Five ratios

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  1. Simple questions on Five ratios Ted Mitchell

  2. #1 • Your normal return on sales is ROS=20%. Your sales revenue increased by $100. • What was the increase in your net profits? • Net Profit = ROS x Revenue • Net profit = 20% x $100 = $20

  3. #2 • Your profits after total promotions or marketing contribution for the month was MC = $200 and your normal marketing return on sales is MROS = 25%. What was the sales revenue for the month? • Marketing Contribution = MROS x Revenue • MC = (MC/R) x R • $200 = 25% x R = ($200/R) x R • R = $200/.25 = $800

  4. #3 • Your selling price is P = $10 • Your variable cost per unit is V = $2 • What is your markup on price, Mp? • Mp = (P-V)/P = (10-2)/10 = 0.8 or 80%

  5. #4 • You increased your selling price by P =$10. • Your normal markup is Mp = 60% • What is the increase in the profit per sale or dollar margin. • Dollar markup = Markup % x Price • (P-V) = ((P-V)/P) x P = Mp x P • P-V = 60% x $10 = $6

  6. #5 • Advertising expense last period was A =$100,000. • Your profit after advertising was MC = $20,000. • What was your Return on Marketing Expense? • ROME = MC/A = 20,000/100,000 = 20%

  7. #6 • Your inventory turnover is 4 times per period • Your return on Sales is ROS = 20% • What is your Return on Inventory, ROI ? • ROI = ROS x Turnover • ROI = Z/R x R/I • ROI = 20% x 4 = 80%

  8. Know the 5 key ratios • ROI = Return on Investment or Inventory • Mp = Percentage Markup on Price • ROS = Return on Sales (Net Profit Margin) • MROS = Marketing’s P rofit Returned on Sales • ROME = MC/TP Ratio =Marketing Profit on the Marketing Expense

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