Which of the following indicates the ratio between profit and costs?

Mark-up is a financial metric that expresses the difference between the selling price of a good or service and its cost, represented as a percentage of the cost. The formula is (Profit / Cost) x 100. This directly calculates the ratio of profit generated relative to the cost incurred to produce or acquire the item. It is a cost-based pricing strategy tool used to ensure that all costs are covered and a desired profit is achieved.

A. Gearing: This ratio measures a company's financial leverage by comparing its debt to its equity, indicating its reliance on borrowed funds rather than shareholder capital.
B. Margin: This measures profitability in relation to sales revenue, not cost. It is calculated as (Profit / Revenue) x 100, showing what percentage of revenue is profit.
D. Liquidity: This refers to a company's ability to meet its short-term financial obligations. Ratios like the current ratio assess the availability of liquid assets to cover current liabilities.

1. Chartered Institute of Procurement & Supply (CIPS). (2018). Commercial Contracting (L4M3) Study Guide. Stamford

UK: Profex Publishing. In the section on 'Financial analysis and stability

' the guide distinguishes between mark-up and margin. It defines mark-up as 'profit as a percentage of costs' (p. 112) and margin as 'profit as a percentage of the selling price' (p. 112).

2. Drury

C. (2018). Management and Cost Accounting (10th ed.). Cengage Learning EMEA. Chapter 19

'Pricing decisions and profitability analysis

' explains that "A mark-up on cost is the profit margin expressed as a percentage of cost" (p. 587). This text is a standard reference for management accounting principles relevant to CIPS modules.

3. Lysons

K.

& Farrington

B. (2020). Procurement and Supply Chain Management (10th ed.). Pearson. In Chapter 12

'Supplier Financial Appraisal

' the text discusses various financial ratios. It clarifies that gearing ratios assess long-term solvency (p. 354) and liquidity ratios (e.g.

current ratio) assess short-term solvency (p. 353)

distinguishing them from profitability measures like mark-up.