9 - Profit Flashcards
gross profit
the difference betwee revenue and the cost of sales
before any costs are taken into account
gross profit =
revenue-cost of sales
operating profit
takes into account operating expenses on top of gross profit
operating profit =
gross profit - other operating expenses
profit for the year
the ‘actual’ profit that the business has ade (taking into account interest
profit for the year =
operating profi +/- interest
profit margin
it comapres the profit figures to sales revenue
the porpotion of sales revenue taht has been converted to profit
gross profit margin
inciates how well a business has performed in terms of direct trading activity
gross profit margin =
gross profit / revenue x100
operating profit margin
takes into account direct and indirect costs. useful to use alongside the gross profit margin
operating profit margin =
operating profit/revenue x 100
profit of the year margin (net profit)
takes into account all revenue and costs
identify is shareiders will be paid a dividend
net profit margin
net profti/revenue x 100
statement of comprehensive income
and the balance sheet
companies produce two key documents
statement of comprehensive income
communicate sthe rveenue generated by a business and then its profits at variosu levels following a series of expenses and exceptional incomes
what can be found from a balance sheet
chanegs in sales revenue
changes in direct cost of sales
profitbility of a business
unusual incomes or expenses through the year
how well oprating costs are managed
ways of increasing revenue
- increase prices
- reduce process
- create awarness and desire through marketing
- add value
why may a business be unprofitable
- no demand
- wrong pric
- low contribution per unit
- poor managment of costs
- overexpansion
ways to reduce costs
- reduce production costs
- improve efficiency
- imporve capacity utilisation
- elimate unprofitable processes
- lower overheads
cash vs profits
a business can not be profitable if it doesn tmanage it scashflow. it is a question of timing and is crucial to the businss
balance sheet
records teh assets and liabiltiies of a business. gives a snapshot of the value and financial strngth of a business
what can we find out on a balance sheet
- value of the business
- current assets
- liabiltiies
- liquidity
- debts
- how a business has been financed
