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Accounting Igcse Cie

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  1. The-Purpose-Of-Accounting Igcse Cie
    3 主题
  2. Business-Documents Igcse Cie
    3 主题
  3. Books-Of-Prime-Entry Igcse Cie
    2 主题
  4. Double-Entry-Book-Keeping-With-Ledger-Accounts Igcse Cie
    8 主题
  5. The-Cash-And-Petty-Cash-Books Igcse Cie
    2 主题
  6. The-Trial-Balance-And-Correction-Of-Errors Igcse Cie
    4 主题
  7. Bank-Reconciliation Igcse Cie
    2 主题
  8. Control-Accounts Igcse Cie
    3 主题
  9. Capital-And-Revenue-Expenditure-And-Receipts Igcse Cie
    2 主题
  10. Depreciation-And-Disposal-Of-Non-Current-Assets Igcse Cie
    3 主题
  11. Other-Payables-And-Other-Receivables Igcse Cie
    2 主题
  12. Irrecoverable-Debts-And-Provision-For-Doubtful-Debts Igcse Cie
    2 主题
  13. Valuation-Of-Inventory Igcse Cie
    2 主题
  14. Financial-Statements-For-Sole-Traders Igcse Cie
    8 主题
  15. Financial-Statements-For-Partnerships Igcse Cie
    5 主题
  16. Financial-Statements-For-Limited-Companies Igcse Cie
    4 主题
  17. Financial-Statements-For-Clubs-And-Societies Igcse Cie
    5 主题
  18. Financial-Statements-For-Manufacturing-Businesses Igcse Cie
    3 主题
  19. Incomplete-Records Igcse Cie
    4 主题
  20. Accounting-Ratios Igcse Cie
    6 主题
  21. Accounting-Principles-And-Policies Igcse Cie
    2 主题
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Exam code:0452 & 0985

What are profitability ratios?

  • Profitability ratios assess a company’s ability to earn profits from sales, operations or assets

    • They compare profits to other values such as revenue, costs and capital employed

  • The main profitability ratios are:

    • Gross margin

    • Mark-up

    • Profit margin

    • Return on capital employed

Gross margin

What is the gross margin?

What is the formula?

fraction numerator Gross space profit over denominator Revenue end fraction cross times 100

How should the value be written?

Write as a percentage (X%)

How should the value be rounded?

Round to two decimal places

What does the value mean?

The value represents the proportion of the revenue that is turned into gross profit

How can the ratio be improved?

  • Increase the selling price of the goods

  • Buy the goods from a cheaper supplier

  • If the gross margin decreases then this suggests that:

    • The goods are being sold at a cheaper price than in previous years

      • Allowing more trade discounts has the same effect

    • The costs of goods have increased but their selling price has remained the same

Examiner Tips and Tricks

The gross margin must be less than 100%. If you get an answer bigger than 100% then check your working.

Worked Example

Kaley is a sole trader. She provides the following information for the year ended 31 December 2023.

$

Revenue

128 000

Purchases

52 000

Inventory at 1 January 2023

8 000

Inventory at 31 December 2023

6 000

Calculate Kaley’s gross margin. Your answer should be correct to two decimal places.

Answer

  • Calculate the cost of sales

    • Opening inventory + Purchases – Closing inventory

    • $8 000 + $52 000 – $6 000 = $54 000

  • Calculate the gross profit

    • Revenue – Cost of sales

    • $128 000 – $54 000 = $74 000

  • Calculate the gross margin

    • fraction numerator Gross space profit over denominator Revenue end fraction cross times 100

    • fraction numerator 74 space 000 over denominator 128 space 000 end fraction cross times 100 equals 57.8125

  • Round to two decimal places

    • Gross margin = 57.81%

Mark-up

What is the mark-up?

What is the formula?

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