Acid Test Ratio and Net Profit Margin Ratio
Net Profit Margin Ratio Formula
(Net Profit/Sales Revenue) * 100
Use of Net Profit Margin Ratio
It is often used to measure the performance of a company and its management team.
Use of Acid Test Ratio
It's mainly used to indicate whether a business has enough short-term assets to pay off its current liabilities.
Acid Test Ratio Formula
Liquid assets / current liabilities
Acid Test Ratio
it's a stricter test of a firm's liquidity. It eliminates stocks, and by doing this it gives the company a given a clearer picture of the firm's ability to pay short term debts.
Net Profit Margin Ratio
used to assess how successful the management of a business has been at converting sales revenue to net profit. It is often used to measure the performance of a company and its management team.
