A-level Business Studies Lesson 32 (3.5.2 L3)

Question 1

Profitability

Answer 1

The ability of a business to generate profit or the efficiency of a business in generating profit.

Question 2

Gross profit margin

Answer 2

This measures gross profit as a percentage of sales (turnover). This ratio measures how efficiently the business is transforming raw materials into products.

Question 3

Operating profit margin

Answer 3

This measures operating profit as a percentage of sales (turnover). This ratio measures how efficiently the business is making a profit from the resources that it is using for its trading activities.

Question 4

Profit for the year (net profit) margin

Answer 4

This measures the profit that is available for shareholders, as a percentage of sales (turnover). This ratio measures how much the shareholders may benefit directly from the financial performance of the business.

Question 5

Management accounting

Answer 5

The creation of financial information for use by internal users in the business, in order to predict, plan, review and control the financial performance of the business.

Question 6

Financial accounting

Answer 6

The provision of financial information to show external users the financial position of the business; it concentrates on historical data.