Q.From the Trading and Profit & Loss Account figures given in Practical Problem 2 above, compute the Gross Profit Ratio and the Net Profit Ratio.

Both ratios divide a profit figure by Net Sales — the only difference is which profit figure is used.

Step 1 — Gross Profit:

Gross Profit = Net Sales − Cost of Goods Sold = 10,00,000 − 7,00,000 = ₹3,00,000.

Gross Profit Ratio = (Gross Profit ÷ Net Sales) × 100 = (3,00,000 ÷ 10,00,000) × 100 = 30%.

Step 2 — Net Profit (as already computed in Practical Problem 2 — Operating Profit 1,50,000 + Non-operating Income 20,000 − Non-operating Expenses 10,000):

Net Profit = 1,50,000 + 20,000 − 10,000 = ₹1,60,000.

Net Profit Ratio = (Net Profit ÷ Net Sales) × 100 = (1,60,000 ÷ 10,00,000) × 100 = 16%. …

Students sometimes compute the Net Profit Ratio using Gross Profit instead of the fully-adjusted Net Profit figure (after deducting Operating Expenses and adjusting for non-operating items) — the Ne …