Finance 4.2

Question 1

What is the formula for gross profit?

Answer 1

Total sales revenue - cost of goods sold (variable costs)

Question 2

What is the formula for net profit?

Answer 2

Gross profit - expenses - tax - dividends

Question 3

What are common profit margins?

Answer 3

10% - average
20% - good
30% - healthy

Question 4

How do you calculate gross profit margin?

Answer 4

Gross profit / revenue
*100

Question 5

How do you calculate net profit margin?

Answer 5

Net profit / revenue
*100

Question 6

How do you calculate break-even?

Answer 6

fixed costs / selling price per unit - variable cost per unit

Question 7

What are common financial statements?

Answer 7

Owners equity
Quarterly/annual reports
Cash flow statement
Income statement
Balance sheet

Question 8

What is the purpose of financial reporting?

Answer 8

Give a snapshot of performance
Provide statistics
Enable the business to achieve its objectives
Show ability to generate profits

Question 9

What is the role of financial reporting?

Answer 9

To communicate financial information
Track/analyze and report income
examine resource efficiency
Review cash flows
Report on business performance