Lesson 1 Flashcards
(31 cards)
Definition of profit
When a business earns more money than it spends on its operations.
Give two points about profit
- Indicates a successful and sustainable business
- Crucial to measure financial health and success
What is the basic profit formula?
Sales revenue – Expenses = Profit
What does sales revenues refer to?
Sales of products or services (e.g. crops)
What does expenses refer to?
Costs such as raw materials.
Why is profit significant to business?
Profit – the lifeblood of business; the fundamental goal and measure of business success representing the difference between what you earn and what you spend
- Owners’ reward for hard work and investment
- Viability to be able to continue in the longer term
- Opportunities for growth and diversification
- Easier to raise finance to invest in expanding the business
- Resilience to withstand events (e.g. poor harvests, price drops)
- Improve lives, economy and society (e.g. food security, job creation)
What does sustainable profitability consider?
- Social
- Economic
- Environmental impacts of business
Definition of gross profit?
the revenue generated from the sales of goods or services minus the direct costs of producing those goods or services
Why is gross profit significant to business?
Gross profit is essential to understanding how efficiently a business is producing and selling its goods and services
Gross profit:
- Is vital to ensure operating expenses are covered
- Enables cost control & pricing decisions
- Identifies direct costs of production
Contributes to overall net profit.
Definition of net profit?
Represents net income, also known as ‘the bottom line’.
Why is net profit significant to business?
Net profit reflects the overall financial performance of the business taking into account all operating and non-operating costs.
Net Profit….
- Accounts for other critical expenses
- Marketing, loan interest, IT, HR, logistics
- Indicates ability of business to generate revenue
- Indicates its ability to manage all costs
- Ultimately, determines success or failure
What is the simple formula for net profit?
Total revenue − all direct costs and operating expenses = net profit
Describe loss in terms of negative profit?
When a business incurs more expenses than the sales revenue generated from its activities.
- Losses will likely occur in certain time frames
- Not financially viable during that time
- Needs adaptability and adjustments
- May need professional advice
- Determine if losses short or long term to plan accordingly.
What are the most common losses in land-based businesses?
Land-based businesses commonly face losses at certain times.
Consider:
- changes in weather or climate
- natural disasters (flood, fire, drought)
- pest infestation
- failure of food or flower crops
- livestock disease
- tree disease
What are some key points to consider in understanding the losses in land-based businesses?
- additional causes of loss
- short/long term losses
- potential consequences
- threatens viability
- risk management
What is known as the break-even point?
The point at which total loss and total revenue are equal
What is break-even analysis?
an activity that business owners can carry out to determine how many units of a product, or how much revenue from a product or service, are needed to cover the costs.
What are Non-profit / not-for-profit businesses?
organisations that operate for purposes other than making profit for its owners or shareholders
What are non-profit businesses usually formed to do?
service specific social causes that aim to benefit a particular group of the general public
How does a non-profit business fulfil its objectives?
A non-profit business still makes a profit but reinvests its surplus (net profit) back into its mission and services to fulfil its objectives.
Definition of cash flow?
a measure which tracks actual cash coming in (sales revenue) and money going out (expenses) of the business.
Give some points about positive cash flow?
- Bringing in more money than it is spending
- Paying all expenses and some left over
- Reinvest into the business
- Save for the future
Give some points about negative cash flow?
- Spending more money than it is making
- Financial challenges, unable to pay bills
- Risks running out of money if not managed
Give 6 cash flow management techniques?
- cash flow forecast
- monitor and track
- timing
- contingency planning
- manage debt
- invoice and payment terms
