8. managing finance

Question 1

what do profit margins tells you

Answer 1

what percentage of the selling price of a product is actually profit

Question 2

gross profit margin equation

Answer 2

(gross profit/ revenue) x 100

Question 3

operating profit margin equation

Answer 3

(operating profit/revenue) x 100

Question 4

profit for the year margin equation

Answer 4

(profit of the year/revenue) x 100

Question 5

different methods to increase profit margins

Answer 5

• increasing revenue by: increasing price, or decreasing price to increase demand (if elastic), improve product quality
• reduce cost of sales: eg cheaper supplier without lowering the quality
• reduce operating expenses: cheaper rent, cheaper labour

Question 6

whats the difference between profit and cash

Answer 6

• profit is money business has left over from revenue once the costs are paid
• cash is what a business has NOW to pay its bills. cash is constantly flowing in and out
• a business making lots of profit can still run out of cash or a business with lots of cash can still not be making a profit