2.4 Flashcards
What is gross profit?
The total profit that a firm earns without any indirect cost reduction.
How is gross profit calculated?
Gross Profit = Sales Revenue - Cost of Sales
What is net profit?
Net profit is the final amount that a firm has by getting rid of ALL their expenses.
How is net profit calculated?
Net Profit = Gross profit - Fixed Costs
What is profit margin?
Profit margin is the ratio of profit compared to the sales revenue.
How is gross profit margin calculated?
Gross Profit Margin = (Gross Profit/ Sales Revenue) * 100
How is net profit margin calculated?
Net Profit Margin = (Net Profit/ Sales Revenue) * 100
What is the average rate of return?
It is the percentage increase/decrease of the initial investment.
How is average rate of return calculated?
Average Rate of Return = (Average Annual Profit/Cost of investment) * 100
Give three good uses of quantitative data analysis:
1) Monitors the performance of the firm.
2) Able to compare its performance with its competitors.
3) Set business aims and objectives.
Give two limitations of using quantitative data analysis:
1) The data could be unreliable / out of date.
2) Business performance isn’t just based on financial performance.
