2.4 Making financial decisions

Question 1

Average rate of return

Answer 1

Average yearly profit as a % of the sum invested. This shows profitability & can be compared with the interest rates available on bank deposit accounts.

Question 2

Gross profit margin

Answer 2

Gross profit as a percentage of sales revenue.

Question 3

Net profit margin

Answer 3

Net profit as a percentage of sales revenue.

Question 4

Sum invested

Answer 4

The cash put at risk when investing in new equipment of a new product

Question 5

Bar chart

Answer 5

Data presented so that the height of the bar represents the quantity involved

Question 6

Line graph

Answer 6

Data presented as lines, making it easy to identify trends

Question 7

Pie chart

Answer 7

Data presented in a circle, with each slice of the pie representing a proportion of the whole

Question 8

Gross profit margin

Answer 8

is the difference between a product’s selling price and what it cost the business.

Question 9

Formula for gross profit margin

Answer 9

gpm= gross profit ÷ revenue x 100

Question 10

To improve gross profit margin

Answer 10

a company either raises the price charged or find a way to get the suppliers price down.

Question 11

Net profit

Answer 11

is what’s left after all the fixed running costs are taken away from gross profit.

Question 12

Formula for net profit margin

Answer 12

npm= net profit ÷ revenue x 100

Question 13

To improve net profit margin

Answer 13

a company either has to raise the gross profit or find a way to cut the fixed running costs.

Question 14

Average rate of return

Answer 14

calculates the average yearly profit on an investment as a percentage of the sum invested.

Question 15

Formula for average rate of return

Answer 15

arr= average yearly profit ÷ initial investment x 100