Profitability ratios
Examples include gross profit margin, operating margin, return on capital employed and return on equity. Define the profit numerator and denominator, including interest, tax, non-controlling interests and average-versus-closing balances where relevant. Follow the formula specified in the exam or question. Compare trends, peers and underlying business conditions; a ratio alone does not establish why performance changed.
Worked example
A business reports gross profit of $60,000 on revenue of $200,000. Its gross profit margin is 30%. If revenue is unchanged but gross profit falls to $50,000, margin falls to 25%, prompting further analysis.
Common mistake
Comparing a margin calculated on revenue with markup calculated on cost, or using inconsistent profit and capital definitions across periods.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FR | Direct | September 2026–June 2027 |
| ACCA | SBR | Supporting | September 2026–June 2027 |