Measuring and Increasing Profit

Question 1

Why do businesses work out the percentage increase or decrease in their profits from year to year?

Answer 1

To see how they are performing each year

Question 2

What do businesses need to do if profits are decreasing?

Answer 2

Investigate why

Question 3

What is the formula for percentage change in profit?

Answer 3

Current year’s profit - Previous year’s profit divided by previous year’s profit X100

Question 4

List 4 ways businesses can improve their profits

Answer 4

Increasing prices
Reduce costs of production
Use advertising to increase demand
Improving the quality

Question 5

What is the disadvantage of increasing prices?

Answer 5

Could mean reduced sales

Question 6

What is the disadvantage of reducing production costs?

Answer 6

Could lead to a lower quality product

Question 7

What is a disadvantage of using advertising to increase demand?

Answer 7

Can be expensive and there is no guarantee that profits will increase.

Question 8

What is the disadvantage of improving the quality?

Answer 8

Could increase costs - they have to be lower than profit

Question 9

What is gross profit?

Answer 9

The amount left over when the cost of sales is subtracted from sales revenue.

Question 10

What is cost of sales?

Answer 10

The costs directly related to making the product

Question 11

How do you calculate gross profit?

Answer 11

Sales revenue - Cost of sales

Question 12

What is operating profit?

Answer 12

All the revenues and costs from regular trading but not one off events

Question 13

What does operating profit take into account?

Answer 13

Both the cost of sales and operating expenses

Question 14

How do you calculate operating profit?

Answer 14

Sales revenue - cost of sales - operating expenses

Question 15

What is the calculation of profit?

Answer 15

Total revenue - total costs

Question 16

What is an example of operating expenses?

Answer 16

Admin expenses

Question 17

What does it mean when a company’s gross profit is increasing but operating profit is decreasing?

Answer 17

The company is not controlling its costs

Question 18

What is profit for the year?

Answer 18

The profit for the year

Question 19

What does profit for the year take into account?

Answer 19

Profit or loss even from one-off events

Question 20

How do you calculate profit for the year?

Answer 20

Operating profit + other profit - net finance costs - tax

Question 21

What do profit margins show?

Answer 21

How profitable a business or product is

Question 22

What do profit margins measure?

Answer 22

The relationship between profit made and sales revenue

Question 23

What is gross profit margin?

Answer 23

Gross profit as a percentage of sales revenue

Question 24

How do you calculate gross profit margin?

Answer 24

Gross profit divided by sales revenue X100

Question 25

How can the gross profit Margin be improved?

Answer 25

By increasing prices or reducing direct cost of sales

Question 26

What is operating profit margin?

Answer 26

Operating profit as a percentage of sales revenue

Question 27

How do you calculate operating profit margin?

Answer 27

Operating profit divided by sales revenue X100

Question 28

How can operating profit margin be improved?

Answer 28

By increasing prices or reducing cost of sales or operating expenses

Question 29

What is profit for the year margin?

Answer 29

Profit for the year as a percentage of sales revenue

Question 30

How do you calculate profit for the year margin?

Answer 30

Profit for the year divided by sales revenue x100

Question 31

Why is a good profit for the year good for a business?

Answer 31

Attractive to shareholders - could receive high dividends