2.3.1 Profit Flashcards
1
Q
How do you calculate gross profit?
1
A
- Revenue - cost of sales
2
Q
How do you calculate operating profit?
1
A
- Gross profit - fixed overheads
3
Q
How do you calculate profit for the year (net)?
1
A
- Operating profit - financing and tax
4
Q
What is a financing cost?
1
A
- Interest paid on bank loan
5
Q
What are fixed overheads?
1
A
- Cost of rent, salaries and bills e.g. electricity
6
Q
Which is the most important profit figure?
1
A
- Operating profit
7
Q
How to calculate gross, operating and net profit margin?
1
A
- Gross profit / sales revenue x100
- Operating profit / sales rev x100
- Net profit /sales rev x100
8
Q
For all profit margins, is a higher or lower margin better?
1
A
- Higher
9
Q
What is the distinction between profit and cash?
4
A
- Sales rev doesn’t = cash in
- Costs don’t = cash outflow
- Diff in time (trade credit)
- Rev = from 1 source, inflows come from many
10
Q
What are the ways to improve profits?
2
A
- Increase revenue
- Decrease costs
11
Q
How may a firm increase it’s revenue?
2
A
- ^Sales volume (^distribution, product ^attractive)
- ^Prices
12
Q
What aspects of a business can be adapted to reduce costs?
4
A
- Machinery
- HR
- Rent
- Wastage
13
Q
What are the ways to improve profitability?
2
A
- ^Price
- >Costs
14
Q
What are the problems with cutting costs?
2
A
- Quality falls
- Damage company rep (cut staff)
15
Q
What is an increase in price dependent on?
1
A
- PED
