2.3.1 profit Flashcards
three types of profit
gross
operating
net
gross profit formula
sales revenue - cost of sales
operating profit formula
gross profit - other operating expenses
net profit formula
operating profit - interest
what does gross profit say about a business
higher the better
figures can be compared year on year
what does net profit say about a business
higher is better
demonstrates how well a business controls their expenses
statement of profit and loss
statement of the income and expenditure of an organisation
revenue
sales during the period
cost of sales
direct costs of generating revenues.
raw materials, components, goods bought for resale
ratio analysis
analysing relationships between financial data to assess the performance of a business
two types of profitability ratios
gross profit margin
operating profit margin
gross profit margin formula
gross profit / sales revenue x 100
operating profit margin formula
operating profit / sales revenue x 100
administration expenses
operating costs and expenses that are not directly related to producing the goods or services are recorded here
operating profit
records how much profit has been made in total from the trading activities of the business before account is taken of how the business is financed
