2.3.1 Profit

Question 1

Define profit

Answer 1

The money a business earns after all expenses have been deducted

Question 2

What is the formula for profit?

Answer 2

Total revenue - Total costs

Question 3

What is the formula for total revenue?

Answer 3

Selling price x quantity

Question 4

What is the formula for total costs?

Answer 4

Fixed costs + total variable cost

Question 5

What is profitability?

Answer 5

The ability for a business to generate a profit

Question 6

What does gross profit measure?

Answer 6

The amount made from selling after deducting costs to make it

Question 7

What is the gross profit formula?

Answer 7

revenue - cost of goods/sales

Question 8

What does operating profit measure?

Answer 8

The profit earned after deducting the costs of running the business

Question 9

What is the operating profit formula?

Answer 9

gross profit - operating expenses

Question 10

What does net profit measure?

Answer 10

Profit made after ALL expenses in a year

Question 11

What is the net profit formula?

Answer 11

Operating profit - finance and tax

Question 12

What does a statement of comprehensive income show?
and what do we use it to calculate

Answer 12

Income and expenses of a business during a financial year and we use it to calculate profit margins

Question 13

What is the gross profit margin formula?

Answer 13

Gross profit/sales revenue x 100

Question 14

What is the operating profit margin formula?

Answer 14

Operating profit/sales revenue x 100

Question 15

What is the net profit margin formula?

Answer 15

Net profit/sales revenue x 100

Question 16

What 3 ways can a business increase profit?

Answer 16

1- Increase sales
2- Decrease variable cost
3- Decrease fixed cost

Question 17

What are 2 examples of how to increase sales?

Answer 17

1-advertise
2- Increase selling price on necessity products

Question 18

What are 2 examples of how to decrease variable costs?

Answer 18

1- Buy cheaper materials
2- decrease production cost (reuse materials)

Question 19

What are 2 examples of how to decrease fixed costs?

Answer 19

1-E-commerce
2-Move to a cheaper location

Question 20

What is the difference between cash and profit?

Answer 20

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)

Question 21

Give 3 examples of cash inflows

Answer 21

-sources of finance
-sale of assets
-sales revenue

Question 22

Give 3 examples of cash outflows

Answer 22

-wages
-stock
-rent

Question 23

What is the difference between a wage and a salary?

Answer 23

Wage- hourly pay
Salary- a fixed yearly amount

Question 24

What are business rates?

Answer 24

A fee businesses have to pay when using property for non-domestic use

Question 25

What 2 times will a business find it difficult to have enough cash on a daily basis and why?

Answer 25

-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

Question 26

Why is it unlikely that cash and profit will be the same at the end of the trading year? (credit)

Answer 26

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