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Understanding financial ratios

Financial ratios are useful tools for business owners to monitor, analyse and improve their business performance.

A financial ratio contains one or more financial figures and is expressed as a ratio, rate or percentage. Financial ratios are used to measure profitability, cash flow and liquidity, risk and return, and stock turnover and sales.

Here are some common financial ratios used in business to:

– Measure profitability
Gross profit margin is a percentage of gross profit on sales.
To work out: (Gross profit x 100) divided by sales.

Net profit margin is a percentage of net profit on sales.
Method: (Net profit before tax x 100) divided by sales.

– Monitor cash and liquidity
Working capital ratio measures the liquidity of a business (i.e. how much money is available to meet creditors’ demands).
To determine this ratio: Working capital = current assets divided by current liabilities.

Quick assets ratio measures the solvency of your business, or its ability to meet its immediate commitments.
Method: Current assets (minus stock) divided by current liabilities.

– Measure turnover and sales
Stock turnover ratio measures the number of times stock turns over.
Method: Cost of goods sold divided by (0.5 x opening + closing stock)

Material to sales ratio measures the percentage of sales dollars spent on materials.
To determine this ratio: (Direct materials x 100) divided by sales.

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News

What to do with your Lost Super

March 19, 2021

After COVID 19’s impact on the world, an influx of employees who had lost their jobs fell into the job market. Many of these came from companies that couldn’t afford to continue their employment. As a result, many individuals had to seek alternative employment, or draw from their super. Some individuals took on multiple jobs to pay bills, and others drew from the super that they had accumulated in the government’s early release scheme specifically for coronavirus related income loss.

Super is held by superannuation funds, and accumulates as a result of how much super an employer pays to the employees’ funds. Many Australians may find that they actually possess multiple super accounts as a result of having “lost” their super accounts during changeovers. It can also happen as a result of changing names, moving addresses, living overseas or changing jobs.

Australians can use the ATO’s online tools to:

As superannuation funds often have fees associated with their upkeep, as well as insurances that may be tied into it (such as life, total and permanent disability and income protection), it’s important to consult with providers before accounts are consolidated.

https://www.ato.gov.au/Individuals/Super/Growing-your-super/Keeping-track-of-your-super/#Lostsuper