2.4.1 Business Calculation Flashcards
What is Gross Profit
The profit a business makes after deducting costs associated with making and selling its products
What is Net Profit
The amount left over after all other expenses have been taken away from the gross profit
Gross Profit Formula
Revenue - Costs of Sales
Net Profit Formula
Gross profit - Fixed Costs
What is shown on a basic income statement
Revenue, Costs of sales, gross profit, other expenses, net profit
GPM / Gross Profit margin definition
Proportion of revenue being converted into gross profit. It is a percentage
NPM / Net Profit Margin definition
Shows us the net profit as a percentage of revenue
Gross profit margin formula
(gross profit / revenue) * 100
Net profit margin formula
(net profit / revenue) * 100
What is ARR / Average Rate of Return
ARR is used to help identify whether an investment will be profitable
ARR formula
(Average Annual Profit / Initial cost of investment) * 100
Average Annual Profit Formula
Total profit / number of years
