2.3.2 Profit

Question 1

what are the 6 profit calculations?

Answer 1

profits and margins (do them in your head )

Question 2

What is the gross profit margin useful for and what is a pro and con?

Answer 2

It is a useful indicator for analysing how a business has performed in term of trading activity.
+ Helps business see if their products have been successful
- Does not take into account indirect costs

Question 3

What is the net profit margin useful for?

Answer 3

good measure of how effectively the business performed over the financial year. May be used to identify potential to pay dividends to shareholders

Question 4

How can profitability be increased?

Answer 4

by increasing revenue or reducing costs.

Question 5

What are 3 ways a firm can increase revenue?

Answer 5

1. increase prices
2. promote the product
3. add value

Question 6

What are 6 ways a business can reduce costs?

Answer 6

1. source cheaper raw materials
2. improve productivity
3. use capacity fully
4. negotiate better deals with suppliers
5. move to a cheaper location
6. close down unprofitable production