2.3.1 Flashcards
What is a profit?
The surplus of revenue over costs
How do you calculate profit?
Total revenue - total costs = profit
State the 3 types of profit
- gross profit
- operating profit
- net profit
What is a statement of comprehensive income?
A formal financial document that summaries a business’ trading activities and expenses (profit or a loss?)
How do you calculate operating profit?
Gross profit - expenses
How do you calculate net profit?
Operating profit - interest and taxation
How do you calculate gross profit?
Sales revenue - cost of sales
State the 3 profitability ratios
- Gross profit margin
- Operating profit margin
- Net profit margin
What is gross profit margin?
A measure of a firm’s profitability by looking at the relationship between gross profit and sales revenue
How do you calculate gross profit margin?
Gross profit / sales revenue x 100
What is operating profit margin?
A measure of a firm’s profitability by looking at the relationship between operating profit and sales revenue
How do you calculate operating profit margin?
Operating profit / sales revenue x 100
What is net profit margin?
A measure of a firm’s profitability by looking at the relationship between net profit and sales revenue
How do you calculate net profit?
Net profit / sales revenue x 100
State 3 ways of increasing profitability
- Sell the same quantity but at a higher price
- Sell more at the current price
- Sell the same at the same price but reduce costs
