This document provides information and examples for calculating key financial metrics for sole proprietors including: - Mark-up percentage, which is calculated by dividing gross profit by cost of goods sold. - Gross profit percentage, calculated by dividing gross profit by sales. - Expense percentages for different expense groups like distribution costs, calculated by dividing the expense by sales. Formulas and step-by-step examples are provided to illustrate how to calculate these percentages from financial statements. The percentages provide insight into a business's profitability, liquidity, and stability.

1. Interpreting accounting
information for sole
proprietors
AS90980

2. Contents
1. Analyse Profitability
2. Interpret Profitability
3. Analyse Liquidity
4. Interpret Liquidity
5. Analyse Stability
6. Interpret Stability

4. This is ALL of them!
You will get this sheet
in your exam so no
need to remember the
formulae
BRING a
calculator to class
every day.

5. Contents
1. Analyse Profitability
2. Interpret Profitability
3. Analyse Liquidity
4. Interpret Liquidity
5. Analyse Stability
6. Interpret Stability
Click here first

6. Mark-up percentage
WHAT is it?
How much does a business add on to the cost of
goods to get their selling price?
How do we calculate it?
Gross Profit x 100
Cost of Goods Sold 1

7. Remember, its Gross Profit divided by Cost of Goods Sold
100
1
times

8. Remember, its Gross Profit divided by Cost of Goods Sold
100
1
times
24000
96000

9. 100
1
times
24000
96000
0.25 times
100
1
times
equals
25%
This means that the business works out 25% of the cost of the
goods and adds that on to work out a selling price.

10. 2004 2005 2006
Sales 225,000 250,000 280,000
Cost of
Goods Sold
135,000 150,000 175,000
Gross profit 90,000 100,000 105,000
Financial Information for Kids R Us daycare
The mark-up percentage for 2005 is:
a. 25%
b. 75%
c. 67%
d.100%

11. Well done! You have learned how to
calculate the Mark-up percent.
Later we will learn about how this
helps us to understand more about a
business.
MOVE on NOW to Gross Profit
percent.
Correct mark-up percent

12. Gross profit percentage
WHAT is it?
What portion of each $1 of sales does a business receive as
gross profit?
How do we calculate it?
Sales
Gross Profit 100
1
times

13. Remember, its Gross Profit divided by Sales this time.
100
1
times

14. Remember, its Gross Profit divided by Cost of Goods Sold
100
1
times
24000
120000

15. 100
1
times
24000
120000
0.20 times
100
1
times
equals
20%
This means that the business keeps 20 cents out of every dollar
of sales as gross profit. Remember that expenses then come out
of that 20 cents.

16. 2004 2005 2006
Sales 225,000 250,000 280,000
Cost of
Goods Sold
135,000 150,000 175,000
Gross profit 90,000 100,000 105,000
Financial Information for Kids R Us daycare
The Gross Profit percentage for 2005 is:
a. 25%
b. 40%
c. 67%
d.100%

17. Well done! You have learned how to
calculate the Gross Profit percent.
Later we will learn about how this
helps us to understand more about a
business.
MOVE on NOW to Expense percent.

18. Expenses percent
• There are 3 you can calculate.
• One for each of the 3 expenses groups (Distribution Costs,
Administrative Expenses and Finance Costs).
WHAT is it?
How much of each $1 of sales is a business paying on expenses?
How do we calculate it?
Sales
Expense Group 100
1
times

19. Distribution Costs
Sales
66000
398600
100
1
times
0.16557 x 100
= 16.56%

20. Administrative Expenses
Sales
33300
398600
100
1
times
0.0835 x 100
= 8.35%

21. Finance Costs
Sales
2500
398600
100
1
times
0.00627 x 100
= .63%

22. Expenses percent
Expense Group Expense Percent
Distribution Costs 16.56%
Administrative
Expenses
8.35%
Finance Costs 0.63%
Huia Bookstore
16.56 cents in every $1 of sales is spent on Distribution Costs
8.35 cents in every $1 of sales is spent on Administrative Expenses
.63 cents in every $1 of sales is spent on Finance Costs

23. 2004 2005 2006
Sales 225,000 250,000 280,000
Cost of Goods Sold 135,000 150,000 175,000
Gross profit 90,000 100,000 105,000
Distribution costs 31,500 40,000 37,800
Administrative Expenses 27,000 26,000 28,000
Finance costs 9,000 10,000 14,000
Profit for the year 22,500 24,000 25,200
Financial Information for Kids R Us daycare
The Finance Cost percentage for 2004 is:
a. 2.5%
b. 7.5%
c. 12%
d.4%

24. Well done! You have learned how to
calculate the Gross Profit percent.
Later we will learn about how this
helps us to understand more about a
business.
MOVE on NOW to Profit Percent.

25. Recheck the formula and
try again.
GO BACK and check the formula
GO BACK and retake the question
GO BACK and see how to work out
the answer
Incorrect Mark-up Percent

26. 100
1
times
100000
150000
0.667 times
100
1
times
equals 67%
This means that the business works out 67% of the cost of the
goods and adds that on to work out a selling price.
Gross Profit
Cost of
Goods Sold

27. Recheck the formula and
try again.
GO BACK and check the formula
GO BACK and retake the question
GO BACK and see how to work out
the answer
Incorrect Gross Profit Percent

28. 100
1
times
100000
250000
0.40 times
100
1
times
equals 40%
This means that the business keeps 40 cents for every dollar of
sales made as Gross Profit.
Gross Profit
Sales

29. Recheck the formula and
try again.
GO BACK and check the formula
GO BACK and retake the question
GO BACK and see how to work out
the answer
Incorrect Expense Percent

30. 100
1
times
9000
250000
0.40
100
1
times
equals 40%
Finance
Costs
Sales

31. Sales
Gross Profit