2.3.1 PROFIT Flashcards
gross profit calculation
revenue - cost of sales
net profit calculation
operating profit - interest
operating profit calculation
gross profit - operating expenses
profit calculation
total revenue - total costs
what can gross profit figures tell you about a business
the higher the better, these figures can be compared year on year and are a measure of the performance of the business
what can net profit figures tell you about a business
the higher the better, demonstrates how well a business is controlling their expenses
what is a profit and loss account called
statement of comprehensive income
what is the statement of comprehensive income
ca be used to calculate profitability ratios such as gross profit margins, operating profit margins and return on capital employed (ROCE)
formula for gross profit margin
(gross profit / revenue) x 100
formula for operating profit margin
(operating profit / revenue) x 100
formula for net profit margin
(net profit before tax / revenue) x 100
businesses should compare profitability with
- industry benchmarks
- competitors
- historical performance
its important to measure profitability for
- decision making
- investor confidence
- strategic planning
- performance evaluation
why can businesses be unprofitable
- expansion of business
- bad cost management
- incorrect selling price
- no demand
4 ways to increase revenue
- increase prices
- decrease prices
- marketing for awareness
- add value to product
