2.3.1 Flashcards
What is profit?
Money left over after all expenses have been accounted for.
What is profitability?
A percentage of sales revenue which is profit.
Formula of GPM
Gross profit/Sales revenue X 100
How do you calculate
Gross Profit
Revenue-cost of sales
What is GPM Showing?
What percentage of one pound in sales revenue equals gross profit.
What are ways to increase GPM? (4)
Increase Sales revenue and decrease cost of sales
Generate more revenue by increasing sales price
Promotional strategies
Lowering cost of sales (cheaper materials, economies of scale)
What is operating profit?
The difference between gross profit and indirect expenses involved in business, such as salaries or rent.
Operating profit margin formula?
Operating profit/sales revenue X 100
What is OPM?
Calculates the percentage of every one pound in sales revenue which is operating profit.
What is the aim of operating profit?
Managers would like to increase it to show they are doing a good job.
How could we increase operating profit? (2)
Use same methods as gross profit
Reduce Expenses - Marketing Costs, Salaries (reduce staff members)
What is Net Profit?
The difference between operating profit and any interest and tax.
What does Net profit also go by?
Profit for the year
Net profit Formula?
Operating profit +- Interest and tax
Net profit margin formula
Net profit/Sales revenue X 100
What are ways to improve profitability? (3)
Reduce Expenses (Relocate business, reduce staff levels)
Increase Price
Reduce Variable Costs (Packaging, economies of scale, cheaper raw materials)
What is an Income Statement?
Income statements are a record of all income and expenditure or an organisation over a year.
On Financial graphs what is important to remember when plotting negative numbers?
Negative numbers are in brackets.
