1.34 Profit Flashcards
(26 cards)
What is gross profit?
The difference between revenue (turnover) and cost of sales.
How is gross profit calculated?
Gross Profit = Revenue - Cost of Sales
What is operating profit?
Gross profit minus operating expenses (e.g. selling & admin costs).
How is operating profit calculated?
Operating Profit = Gross Profit - Operating Expenses
What is net profit (profit for the year)?
Operating profit minus interest and exceptional items.
How is net profit calculated?
Net Profit = Operating Profit - (Interest + Exceptional Items)
What does gross profit margin measure?
The percentage of revenue retained after covering cost of sales.
Formula for gross profit margin?
(Gross Profit / Revenue) × 100
What does operating profit margin show?
Efficiency of business operations relative to revenue.
Formula for operating profit margin?
(Operating Profit / Revenue) × 100
What does net profit margin reflect?
Proportion of revenue left after all costs, including tax and interest.
Formula for net profit margin?
(Net Profit Before Tax / Revenue) × 100
What is a statement of comprehensive income?
A financial document showing income, costs, and profit over a year.
What are the components of a statement of comprehensive income?
Revenue, cost of sales, gross profit, expenses, operating profit, interest, tax, net profit.
Name two ways businesses can improve profitability.
Increase prices and reduce costs.
Why does raising prices improve profitability?
Higher price per unit increases revenue if sales volume is maintained.
Give two examples of lowering costs.
Sourcing cheaper suppliers, using energy more efficiently.
How does improved efficiency help profit?
Lowers production costs, improves margins.
What’s the difference between cash and profit?
Profit includes non-cash items and credit sales; cash refers to actual money flow.
Can a profitable business have cash flow problems?
Yes – due to unpaid invoices, large investments, or stock buildup.
What is amortisation?
Spreading the cost of an intangible asset over its useful life.
What are exceptional costs?
One-off, unusual expenses (e.g. lawsuits, restructuring).
Define revenue (turnover).
Total income from selling goods/services before any deductions.
What is meant by the term ‘bottom line’?
The net profit figure shown at the end of the income statement.
