2.8 Managing Finance

Question 1

Why do businesses work out the % increase and decrease in their profits from year to year?

Answer 1

Make it easy to see how they are performing in comparison to other years

Question 2

% percentage change in profits calculation?

Answer 2

Current years profit - previous years profit
———————————————————— X100
Previous years profit

Question 3

Three different measures of profit?

Answer 3

. Gross profit
. Operating profit
. Net profit (profit for year)

Question 4

What is gross profit?

Answer 4

When the cost of sales is subtracted from total revenue

Question 5

What is operating profit?

Answer 5

Considers both costs of sales and operating expenses, such as administrative expenses

Question 6

What is administrative expenses?

Answer 6

Business expenses that are not related to the cost of goods or sales, such as salaries of office staff, insurance…

Question 7

What is net profit (profit for the year)

Answer 7

Takes into consideration the cost of any interest the business has to pay for borrowing money

Question 8

Gross profit calculation

Answer 8

Gross profit= Total Revenue-cost of sales

Question 9

Operating profit calculation?

Answer 9

Operating profit=total revenue-cost of sales

Question 10

Net profit calculation?

Answer 10

Net profit= operating profit- interest

Question 11

What is a statement of comprehensive income (profit loss account)?

Answer 11

Shows how much money has been coming in and out of the business over a period of time

Question 12

Features of statement of comprehensive income?

Answer 12

. Should cover one whole accounting year

. Should cover previous years data for easy comparison to see what changed