2.3.1 Profit Flashcards
(17 cards)
gross profit calculation
revenue - cost of sales
net profit calculation
operating profit - interest
operating profit calculation
gross profit - operating expenses
profit calculation
total revenue - total costs
what can gross profit figures tell you about a business
the higher the better, these figures can be compared year on year and are a measure of the performance of the business
what can net profit figures tell you about a business
the higher the better, demonstrates how well a business is controlling their expenses
what is a profit and loss account called
statement of comprehensive income
what is the statement of comprehensive income
can be used to calculate profitability ratios such as gross profit margins, operating profit margins and return on capital employed (ROCE)
formula for gross profit margin
(gross profit / revenue) x 100
formula for operating profit margin
(operating profit / revenue) x 100
formula for net profit margin
(net profit before tax / revenue) x 100
businesses should compare profitability with
industry benchmarks
competitors
historical performance
its important to measure profitability for
decision making
investor confidence
strategic planning
performance evaluation
why can businesses be unprofitable
expansion of business
bad cost management
incorrect selling price
no demand
4 ways to increase revenue
increase prices
decrease prices
marketing for awareness
add value to product
ways to reduce costs
improve efficiency
eliminate unprofitable processes
lower overheads
use capital more effectively
whats the difference between profit vs cash
profit is the figures a business makes after subtracting all expenses from it’s revenue over a period whereas cash is actual money a business has on hand for immediate use
