2.4 Making Financial Decisions

Question 1

Profit Key Idea

Answer 1

the profits made by a business consist of the money that is left over once all off the expenses incurred in running the business have been paid

Question 2

Basic Formula for Profit

Answer 2

Total Revenue - Total Costs

Question 3

different types of profit

Answer 3

gross profit
net profit

Question 4

costs

Answer 4

businesses usually separate their costs into variable costs and fixed costs .Variable costs change without output .Fixed costs stay the same no matter how many products the business sells .

Question 7

gross profit

Answer 7

Gross profit is the difference between the money received from selling goods and services and the cost of making or providing them .It ignores any fixed costs ,or overheads ,so it is useful in showing how much profit each product or service generates .

Question 8

Gross profit calculation

Answer 8

Gross profit= sales revenue -cost of sales

Question 9

net profit

Answer 9

Net profit is the difference between the amount of money received from selling goods and services and all of the costs incurred in order to make them . Net profit is often considered to be more important profit figure , as it includes all of the fixed costs and other overheads that a business has to pay .

Question 10

net profit calculation

Answer 10

net profit = gross profit-other operating expenses and interest

Question 11

gross profit margins key idea

Answer 11

Profit calculations alone are of limited use. While gross profit can be compared over time to see whether products have become more or less profitable , additional information is needed to assess whether a business has performed well.

Question 12

gross profit margins key idea

Answer 12

In order to better assess the performance of a business ,it is necessary to calculate the profit margin . Profit margin is the amount of profit expressed as a percentage of sales revenue . Since there are two different measures of profit , there are also two different types of profit margin :gross profit margin and net profit margin.

Question 13

gross profit margin

Answer 13

the gross profit margin is the percentage of sales revenue that is left once the cost of sales has been paid. It tells a business how much gross profit is made for every pound of sales revenue received . For example , a gross profit margin of 75% means that every pound of sales provides 75 pence of gross profit .

Question 14

Gross profit margin calculation

Answer 14

gross profit/sales revenue X 100

Question 15

using the gross profit margin

Answer 15

comparing gross profit margins over time can be useful for businesses . In the example above ,the gross profit margin decreased despite the fact that the sales revenue tripled and gross profit doubled . This indicates that the cost of sales , which includes raw materials ,increased faster than the business increased the price it charged its customers . The business might respond by increasing the price that it charges its customers or by negotiating lower prices for raw materials with its suppliers .

Question 15

net profit margins key idea

Answer 15

The net profit margin is the proportion of sales revenue that is left once all costs have been paid . It tells a business how much net profit is made for every pound of sales revenue received . For example , a net profit margin of 32% means that every pound of sales provides 32 pence of net profit .

Question 16

net profit margin calculation

Answer 16

net profit/ sales revenue x 100