OxfordAQA IGCSE Accounting: Accounting ratios and financial measures (9215) – Revision Notes

These notes are aligned to the OxfordAQA International GCSE Accounting (9215) specification, version 1.2, exams from May/June 2026 onwards. They condense the section 3.5 content on the calculation and interpretation of financial measures and ratios, with short reminders on appraisal, cash and profit, and limitations. All amounts are in dollars.

For full explanations and a worked example, read the study guide. To test yourself, use the practice questions. Other links: course hub, checklist and the free diagnostics.

The specification says the formulae are in an OxfordAQA guide, “Formulae for accounting ratios”. The forms below are the standard forms. Learn the board’s own versions from that guide and use them if they differ.

The nine measures: formulae and units

Measure	Standard form	Answer given as
Gross profit margin %	gross profit / revenue x 100	percentage
Markup %	gross profit / cost of sales x 100	percentage
Rate of inventory turnover	cost of sales / average inventory	times per year
Profit in relation to revenue %	profit from operations / revenue x 100	percentage
Return on capital employed %	profit from operations / capital employed x 100	percentage
Current ratio	current assets : current liabilities	ratio, for example 2 : 1
Liquid capital ratio	(current assets - inventory) : current liabilities	ratio
Trade receivable days	trade receivables / credit revenue x 365	days
Trade payable days	trade payables / credit purchases x 365	days

Building blocks

• Cost of sales = opening inventory + purchases - closing inventory.
• Gross profit = revenue - cost of sales.
• Average inventory = (opening + closing) / 2.
• Profit from operations = gross profit - operating expenses, before loan interest.
• Profit for the year = profit from operations - loan interest.
• Capital employed = total assets - current liabilities = equity + non-current liabilities.

Method in steps

1. Write the formula first.
2. Pick the right figures. Mark which are from the income statement and which are from the statement of financial position.
3. Work out any building block you need, such as cost of sales or capital employed.
4. Substitute and calculate. Show the working.
5. Give the unit: percentage, times, days or ratio.
6. If asked to comment, compare with something and give a reason.

Worked reminder: Thornsby Stationers

Revenue 96,000 (73,000 on credit). Cost of sales 72,000, from opening inventory 11,000, purchases 74,000 (43,800 on credit) and closing inventory 13,000. Profit from operations 18,500, loan interest 500. Non-current assets 58,000. Current assets: inventory 13,000, trade receivables 15,000, bank 4,000. Current liabilities: trade payables 6,000 and other payables 10,000.

Measure	Working	Result
Gross profit	96,000 - 72,000	24,000
Gross profit margin	24,000 / 96,000 x 100	25.0%
Markup	24,000 / 72,000 x 100	33.3%
Rate of inventory turnover	72,000 / 12,000	6.0 times
Profit in relation to revenue	18,500 / 96,000 x 100	19.3%
Capital employed	58,000 + 32,000 - 16,000	74,000
Return on capital employed	18,500 / 74,000 x 100	25.0%
Current ratio	32,000 : 16,000	2.0 : 1
Liquid capital ratio	19,000 : 16,000	1.19 : 1
Receivable days	15,000 / 73,000 x 365	75 days
Payable days	6,000 / 43,800 x 365	50 days

Customers take 75 days to pay but suppliers are paid in 50. That squeezes cash, even though the current ratio of 2.0 : 1 looks healthy.

Interpretation cues

Measure	Higher	Lower
Gross profit margin and markup	Better pricing or cheaper buying	Discounts, dearer suppliers, sales mix
Profit in relation to revenue	Tight expense control	Expenses growing faster than revenue
Return on capital employed	Capital used productively	Falling profit or new capital not yet earning
Inventory turnover	Faster selling; less cash tied up	Slow-moving or excess inventory
Current ratio	Safer cover, but may mean idle assets	Possible trouble paying short-term debts
Liquid capital ratio	Cover without relying on inventory	Below 1 : 1 means reliance on selling inventory
Receivable days	Slow collection or generous terms	Quicker cash, tighter credit control
Payable days	Cash kept longer, supplier goodwill at risk	Suppliers paid quickly, cash used sooner

Must-know distinctions

• Margin divides by revenue. Markup divides by cost of sales. Markup is the larger figure for the same trading.
• Margin to markup: margin / (100 - margin) x 100. Markup to margin: markup / (100 + markup) x 100. For example, 40% margin is 66.7% markup, and 80% markup is 44.4% margin.
• Current ratio includes inventory. The liquid capital ratio does not.
• Profit in relation to revenue and ROCE both use profit from operations (before loan interest), as OxfordAQA’s own 9215 mark scheme (Paper 2, May/June 2026) does.
• Profit is not cash. Credit sales raise profit but not cash. Depreciation lowers profit but not cash. Buying equipment, repaying loans and drawings lower cash without lowering profit when they happen.
• Paying a trade payable from the bank lowers current assets and current liabilities by the same amount. A current ratio above 1 : 1 then rises. Buying a non-current asset from the bank lowers current assets only, so the ratio falls.

Cash and profit: effect of common transactions

Transaction	Profit	Cash at bank
Sale on credit	Rises now	No change until the customer pays
Customer pays a trade receivable	No change	Rises
Purchase of inventory on credit	No change until sold	No change until paid
Depreciation charge	Falls	No change
Purchase of equipment from the bank	No change now	Falls
Drawings in cash	No change	Falls
Payment of an expense	Falls	Falls

When asked why profit and cash differ, name the transactions in the question and say which of the two each one changes.

Appraisal and limitations in brief

• Profitability appraisal: use the margin, markup, profit in relation to revenue and ROCE. Compare years, state what moved, give a reason, reach a judgement.
• Liquidity appraisal: use the current ratio, liquid capital ratio and the days measures. State whether short-term debts can be met.
• Financial limitations: historic figures, year-end snapshots, differing accounting policies, inflation, ratios do not explain why.
• Non-financial limitations: staff, reputation, customer loyalty, competitors, market conditions, management quality.

Quick self-test

1. A trader has revenue of 54,000 and cost of sales of 36,000. Calculate the gross profit margin and the markup.
2. Cost of sales is 63,000 and the gross profit margin is 30%. Find revenue.
3. An item costing 50 sells for 80. Find the margin and the markup.
4. Cost of sales is 84,000 and average inventory is 12,000. Find the rate of inventory turnover.
5. Profit from operations is 12,000, equity is 50,000 and a loan is 10,000. Find the return on capital employed.
6. Current assets are 45,000, including inventory of 18,000. Current liabilities are 30,000. Find the current ratio and the liquid capital ratio.
7. Trade receivables are 9,000 and credit revenue is 54,750. Find trade receivable days.
8. Trade payables are 10,950 and credit purchases are 54,750. Find trade payable days.
9. Current assets are 20,000 and current liabilities are 10,000. The business pays 5,000 to trade payables from the bank. Find the new current ratio. Does profit change?
10. Give two non-financial limitations of ratio analysis.

Answers

1. Gross profit 18,000. Margin = 18,000 / 54,000 x 100 = 33.3%. Markup = 18,000 / 36,000 x 100 = 50%.
2. Cost of sales is 70% of revenue, so revenue = 63,000 / 0.70 = 90,000.
3. Gross profit 30. Margin = 30 / 80 x 100 = 37.5%. Markup = 30 / 50 x 100 = 60%.
4. 84,000 / 12,000 = 7 times.
5. Capital employed = 50,000 + 10,000 = 60,000. ROCE = 12,000 / 60,000 x 100 = 20%.
6. Current ratio = 45,000 : 30,000 = 1.5 : 1. Liquid capital ratio = 27,000 : 30,000 = 0.9 : 1.
7. 9,000 / 54,750 x 365 = 60 days.
8. 10,950 / 54,750 x 365 = 73 days.
9. Current assets become 15,000 and current liabilities 5,000, so the ratio rises from 2 : 1 to 3 : 1. Profit does not change.
10. Any two of: staff morale or skills, reputation, customer loyalty, competitor actions, market conditions, quality of management.

Where marks are usually lost

• Using the wrong base for markup, dividing by revenue instead of cost of sales.
• Using closing inventory instead of average inventory for turnover when both are available.
• Leaving out the unit, or writing days as a percentage.
• Using total revenue for receivable days when credit revenue is given.
• Forgetting to remove inventory in the liquid capital ratio.
• Deducting loan interest before ROCE when the formula uses profit from operations.
• Calling a figure good or bad with no comparison and no reason.
• Treating profit and cash as the same thing when explaining a falling bank balance.
• Giving limitations that are generic and not tied to the business in the question.

Frequently asked questions

What is the difference between gross profit margin and markup? Margin divides gross profit by revenue, while markup divides gross profit by cost of sales. For the same trading, markup is always the larger figure.

How do you convert a margin into a markup? Markup = margin / (100 − margin) × 100, and margin = markup / (100 + markup) × 100. For example, a 40% margin is a 66.7% markup.

What is the difference between the current ratio and the liquid capital ratio? The current ratio includes inventory in current assets; the liquid capital ratio leaves it out.

Why can a business make a profit but have less cash? Profit is not cash. Credit sales raise profit before cash arrives, depreciation lowers profit without using cash, and buying equipment, repaying loans and drawings lower cash without lowering profit.

Where are the 9215 ratio formulae published? The specification says the formulae are in an OxfordAQA guide called Formulae for accounting ratios.

Official syllabus

OxfordAQA International GCSE Accounting (9215), specification version 1.2, for exams from May/June 2026 onwards, section 3.5: Interpretation, analysis and communication of financial information.