Understand, compute, and explain the significance of key accounting ratios including gross margin, profit margin, return on capital employed (ROCE), current ratio, liquid (acid test) ratio, inventory turnover rate (times), trade receivables turnover (days), and trade payables turnover (days).

Quick explanation

Understand, compute, and explain the significance of key accounting ratios including gross margin, profit margin, return on capital employed (ROCE), current ratio, liquid (acid test) ratio, inventory turnover rate (times), trade receivables turnover (days), and trade payables turnover (days)

• This point belongs to Calculation and understanding of accounting ratios, especially Calculation and understanding of accounting ratios outcomes.
• You need to be able to understand, compute, and explain the significance of key accounting ratios including gross margin, profit margin, return on capital employed (ROCE), current ratio, liquid (acid test) ratio, inventory turnover rate (times), trade receivables turnover (days), and trade payables turnover (days).
• The key ideas to know are Calculate, Explain, and Identify.
• Use the linked flashcards and practice questions to check recall, then practise applying the idea in an exam-style answer.