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Chapter 6

Illustrations and further practice

Now read the ‘Triangulation [Dupont Model of Measurement] example from
Chapter 6.

Gross profit
Gross profit percentage (GP margin) = –––––––––– × 100%
Sales

Net profit
Net profit percentage (NP margin) = –––––––– × 100%
Sales

Liquidity: Liquidity means having cash, or ready access to cash. Liquid
assets are therefore cash and short-term investments that can be
readily sold if the need arises. In addition, liquidity is improved by
unused bank borrowing facilities.

Liquidity is improved through efficient cash management, and an
important element of good cash management is control over inventory,
trade receivables and trade payables.

Current assets
Current ratio = –––––––––––––
Current liabilities

Current assets – inventories
Quick ratio (acid test) = –––––––––––––––––––––––
Current liabilities

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