2.3.1 Profit Flashcards
Define profit
The money a business earns after all expenses have been deducted
What is the formula for profit?
Total revenue - Total costs
What is the formula for total revenue?
Selling price x quantity
What is the formula for total costs?
Fixed costs + total variable cost
What is profitability?
The ability for a business to generate a profit
What does gross profit measure?
The amount made from selling after deducting costs to make it
What is the gross profit formula?
revenue - cost of goods/sales
What does operating profit measure?
The profit earned after deducting the costs of running the business
What is the operating profit formula?
gross profit - operating expenses
What does net profit measure?
Profit made after ALL expenses in a year
What is the net profit formula?
Operating profit - finance and tax
What does a statement of comprehensive income show?
and what do we use it to calculate
Income and expenses of a business during a financial year and we use it to calculate profit margins
What is the gross profit margin formula?
Gross profit/sales revenue x 100
What is the operating profit margin formula?
Operating profit/sales revenue x 100
What is the net profit margin formula?
Net profit/sales revenue x 100
What 3 ways can a business increase profit?
1- Increase sales
2- Decrease variable cost
3- Decrease fixed cost
What are 2 examples of how to increase sales?
1-advertise
2- Increase selling price on necessity products
What are 2 examples of how to decrease variable costs?
1- Buy cheaper materials
2- decrease production cost (reuse materials)
What are 2 examples of how to decrease fixed costs?
1-E-commerce
2-Move to a cheaper location
What is the difference between cash and profit?
Cash is needed to run a business on a day-to-day basis
Profit is the money you earn from selling (can live without it for a while)
Give 3 examples of cash inflows
-sources of finance
-sale of assets
-sales revenue
Give 3 examples of cash outflows
-wages
-stock
-rent
What is the difference between a wage and a salary?
Wage- hourly pay
Salary- a fixed yearly amount
What are business rates?
A fee businesses have to pay when using property for non-domestic use
What 2 times will a business find it difficult to have enough cash on a daily basis and why?
-start up
-rapid growth
because the business may need to invest in machinery in order to run the business of a bigger property in response to growth
Why is it unlikely that cash and profit will be the same at the end of the trading year? (credit)
If goods are sold on credit the business will include the goods but may not yet have received the cash
or
The business may receive the cash at the start of the next trading year from sales in the previous year
