Page 373 - VIRANSH COACHING CLASSES

Net Profit After Tax
c) Net Profit Ratio = × 100
Net Sales
Profit = Operating Profit + Non Operating Income - Non Operating Expenses

Non Operating Income : It includes income from non trading activities e.g. Interest received,
Dividend received, Compensation received, Refund received, Profit on Sale of Fixed Assets
and Investments. Such net profit can be taken before tax paid or after tax paid.

The main purpose of this ratio is to understand return on investment.

Operating Profit Ratio :
Meaning : Operating Profit Ratio indicates the relationship between operating profit and the net
sales. It is usually expressed in the form of a percentage and is also known as Net Operating Profit
Ratio.
Formula :
Operating Profit
Operating Profit = × 100

Net Sales
Where (OP) = Gross Profit - Operating Expenses
Net Sales (S) = Sales - Return - Allowances

4. Operating Ratio
Meaning : It expresses the relationship between total operating costs and net sales and is expressed
by way of percentage

Formula :
Cost of Goods Sold + Operating Expenses
Operating Ratio = Net Sales × 100

Where cost of Goods Sold = Opening stock + Purchases + Wages -Cl. Stock
Operating Expenses = 1. Office and Administrative Expenses

2. Selling and Distribution Expenses
3. Finance Expenses (Excluding Interest
on Loans and Debentures)
Net Sales = Sales - Returns - Allowances.

(C) Combine Mixed Ratio :
(A) Return on investment (ROI) : This ratio measures net profit before tax and interest and
capital invested. This ratio is computed to measure the overall efficiency or profitability
of business.

Return on capital investment :
Profit before Tax, Interest and Dividend × 100
Capital Employed

Considering 12th syllabus does not have company act in detail
Net Profit
ROI should be = × 100
Capital Employed

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