Accountancy Part BAccounting Ratios

What is gross profit ratio?Gross sales Rs. 7,60,000Sales returns Rs.…

What is gross profit ratio?

Gross sales Rs. 7,60,000
Sales returns Rs. 40,000
Net Profit after interest Rs. 40,000
Indirect expenses Rs. 60,000
Interest paid on debentures Rs. 20,000

Answer & explanation

Correct answer: option 1

The correct answer is Option (1) → 16.67%

Gross profit is not given, so it is built up from the net profit by adding back every charge that comes below gross profit.

Net Revenue from Operations = Rs. 7,60,000 − Rs. 40,000 = Rs. 7,20,000
Gross Profit = Net Profit Rs. 40,000 + Interest on debentures Rs. 20,000 + Indirect expenses Rs. 60,000
Gross Profit = Rs. 1,20,000
Gross Profit Ratio = Rs. 1,20,000 ÷ Rs. 7,20,000 × 100
Gross Profit Ratio = 16.67%

NCERT (2026-27 edition):
Gross Profit Ratio – “… Gross Profit Ratio = Gross Profit/Net Revenue of Operations × 100 Significance: It indicates gross margin on products sold. It also indicates the margin available to cover operating expenses, non-operating expenses, etc. Change in gross profit ratio may be due to change in selling price or cost of revenue from operations or a combination of both. A low ratio may indicate unfavourable purchase and sales policy. Higher gross profit ratio is always a good sign.”