Ratio Analysis: How can Mark-ups be used as an assessment tool?
Mark-up tests are useful to access risk, test the credibility of both the business anddeclarations made. They may also give an indicator as to whether duty has been paid on theproduct.
Mark-ups are a fundamental part of business; businesses must place a mark-up on theirpurchases sufficient to meet a realistic profit margin, after overheads etc. are takenaway from the equation. In addition, their mark-up needs to be competitive with the marketat large.
When considering mark-up of excise goods, you should consider the excise duty elementwithin the calculation. For example, if a mark-up test was carried out in reverse, toestablish volume of excise goods sold, the volume calculated would depend on whether dutywas also vectored in or out of the equation.
Businesses with a high turnover of excise stock may add lower mark-ups than those with alow turnover of stock; this is because their volume of sales would support the desiredoverall profit margin. Clearly the advantage here is that the lower price will under cutcompetitors. Clearly a very low mark-up would be an indicator of risk, but needs to beconsidered in the wider context of the business.