2.3.1 Profit Flashcards
Profit
Surplus of revenue when costs are covered
Gross profit
Profit a company ,ales after deducting the costs associated with making and selling its products, or the costs associated with providing its services
Operating profit
Records how much profit has been made in total from the trading activity of the business before any account is taken of how the business is financed
Statement of comprehensive income
A formal financial document that summarises a business trading activities and expenses to show wether it has made a profit or loss
Profit margin
Tells the business just what percentage of its turnover is actually profit
Profit =
Total revenue - total costs
3 types of profit are
Gross, operating and profit for the year
Sales revenue =
Quantity sold x selling price
Cost of sales
Costs directly linked to the production of the goods or services sold eg raw material
Gross profit =
Sales revenue - cost of sales
Other operating expenses
All other costs associated with the trading of the business eg salaries and marketing expenditure
Operating profit =
Gross profit - operating expenses
Profit for the year (net profit) =
Operating profit - interest and taxation
Gross profit margin
Is a measure of a firms profitability by looking at the relationship between gross profits and sales revenue
Gross profit margin =
Gross profit / sales revenue x 100
A low GPM means
Sales revenue is declining and more is needed to be paid towards costs of sales, business isn’t managing costs effectively such as costs of raw materials
Operating profits margin
Is a measure of a firms profitability by looking at the relationship between operating profit and sales revenue
Operating profit margin =
Operating profit / sales revenue x 100
If OPM is falling this means
Business isn’t managing expenses effectively, sales are in decline
Profit for the year
A measure of a firms profitability by looking at the relationship between origin for the year and sales revenue
Profit for the year margin =
Profit for the year/ sales revenue x 100
If profit for the year margin is falling this means
Gross profit or operating profit in decline, interest rates or taxation has changed
Ways to improve profitability
Sell the same amount at higher price, sell more at the current price, sell the same at the same price but cut costs
Profit calculation =
Sales - variable costs - fixed costs
Cash flow calculations =
Cash inflows - cash outflows
Two differences between profit and cash flow
Timing differences - cash isn’t received straight sway. The way that fixed assets are accounted for
