1.6.3 Profit & Loss Flashcards
(13 cards)
How does profit act as a signal in the market
By giving firms an incentive to enter/ leave the market
What markets are firms most likely going to enter
High profits being made
What does the statement comprehensive income mean
Shows the revenue & expenses of a firm
What is net income
Known as profit / loss
What does it mean if a firm has larger expenses
There would be more outflows
How does firms calculate & measure profitability
Gross profit margin
Equation for gross profit
Total sales - the cost of the goods sold
Equation for gross profit margin
Gross profit / sales
( shown as a percentage)
How can gross profit margin be increased
By raising prices & decreasing costs
What is operating profit
When the profit is earned from the core business operations
How is operating profit margin calculated
Operating revenue - costs of goods sold - operating expenses - depreciation & amortisation
What is net profit
Represents the number of sales left after all expenses, interest & taxes have been taken off
How is net profit calculated
Total revenue - total expenses
