**Meaning of Accounting Ratios**

Ratio simply means one number expressed in term of another.

Accounting ratio therefore is used to describe significant relationship between figures as shown on a balance sheet ,in a profit and loss account ,in budgetary control system or in any other aspects of accounting organization.

Accounting ratios thus shows the relationship between accounting data.

MARK-UP AND MARGIN

**MARK-UP**: It is the relationship between the profit and cost price of goods. The profit will be expressed as a percentage of the cost price.

The formula is \(\frac{\text{profit}}{\text{cost price}} \times 100\)

Mark-up can be converted to margin by adding the numerator to the denominator. This can be analysed thus

If mark-up is \(\frac{1}{5} \text{ or } 25\%\)

Margin \(= \frac{1}{5} + 1 = \frac{1}{6} \text{ or } 16.7\%\)

**MARGIN: **This is the profit expressed as a percentage of the selling price. The formula can be expressed thus

Margin \(= \frac{\text{profit}}{\text{selling price}} \times 100\)

Margin can be converted by deducting the numerator from the denominator.

If margin is \(\frac{1}{4} \text{ or } 25\%\)

Mark-up \(= \frac{1}{4} -1 = \frac{1}{3} \text{ or } 33 \frac{1}{3}\%\)

**Example 1:** Sola gives the following as at 31st December

Stock 1/12/10 N12,000

Purchases N68,000

The mark-up on cost of sales is 25%.

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