2.3) Managing Finance

Question 1

What is the Equation for Gross Profit?

Answer 1

Total Revenue - Cost of Sales

Question 2

What is the Equation for Operating Profit?

Answer 2

Gross Profit - Expenses

Question 3

What is Net Profit also known as?

Answer 3

Profit of the Year

Question 4

What is the Equation for Net Profit?

Answer 4

Operating Profit - Interest

Question 5

List the types of Profit in order from which calculation is needed for the other:

Answer 5

1) Gross Profit
2) Operating Profit
3) Net Profit

Question 6

What is the Equation for Gross Profit Margin?

Answer 6

GPM = Gross Profit/Revenue × 100

Question 7

What is the Equation for Net Profit Margin?

Answer 7

NPM = Net Profit/Revenue × 100

Question 8

What does a Profit Margin show us?

Answer 8

It shows us the Profit as a percentage of Revenue

Question 9

What are the ways a business can tell if it has satisfactory Profit Margins?

Answer 9

If it’s:

• Higher than competitors
• Higher than previous years

Question 10

What is the Equation for Operating Profit Margin?

Answer 10

OPM = Operating Profit/Revenue × 100

Question 11

Name the ways of Improving Profits:

Answer 11

• Making Staff Redundant
• Reducing Employee Wages
• Moving to a Cheaper Location
• Changing to a Cheaper Supplier
• Increasing Prices

Question 12

What is the Equation for Current Ratio?

Answer 12

Current Assets/Current Liabilities

Question 13

What is the Equation for Acid Test Ratio?

Answer 13

Current Assets - Stock/Current Liabilities

Question 14

What is Liquidity?

Answer 14

It is a company’s ability to convert assets to cash to pay back its short-term liabilities

Question 15

Name the 2 types of Assets

Answer 15

1) Current Assets

2) Non - Current Assets