Measuring And Improving Profit

Question 1

What can profit be used to measure?

Answer 1

Success

Question 2

What do you have to consider when measuring profit?

Answer 2

Has profit gone up or down? Are there any trends over the past few years? Has the rate of growth of profit altered?

Question 3

If one business is more profitable than another, how do you know if it’s more successful?

Answer 3

It depends on how many sales are required to make it and how much money had to be invested to obtain the profit requirement

Question 4

Define profitability

Answer 4

A measure of financial performance that compares a businesses profit to other factors such as revenue

Question 5

Define profit margin

Answer 5

Ratio with expresses a businesses profit as a percentage of its revenue over a period

Question 6

Define gross profit

Answer 6

The amount of revenue left over after subtracting direct costs or cost of sale

Question 7

Formula for gross profit

Answer 7

Sales revenue minus direct cost of sale

Question 8

Formula for gross profit margin

Answer 8

Gross profit divided by revenue times by 100

Question 9

Define gross profit margin

Answer 9

Percentage of revenue, that’s actually gross profit

Question 10

What does gross profit margin to do?

Answer 10

Allow you to compare between businesses and time periods
Doesn’t include overhead ,expenses ,in direct cost eg advertising

Question 11

What does operating profit mean?

Answer 11

What’s left from revenue after all operating cost of businesses have been deducted for example fixed cost and variable cost – vital as it finances growth

Question 12

Why is operating profit better than gross profit margin?

Answer 12

It’s a common measure of success and is better than gross profit margin as it includes expenses

Question 13

Formula for operating profit

Answer 13

Gross profit minus overheads/expenses/indirect cost

Question 14

Define operating profit margin

Answer 14

Amount of operating profit made on each sale I.E the percentage of revenue that’s operating profit

Question 15

What’s the formula for operating profit margin?

Answer 15

Operating profit divided by sales revenue times 100

Question 16

What is the formula of profit for the year margin?

Answer 16

Profit of the year divided by revenue times 100

Question 17

Define profit for the year

Answer 17

Measure of a businesses profit that taken into account a wider range of expenditures and incomes, including taxation

Question 18

What is the formula for profit for the year?

Answer 18

Operating profit plus additional income minus taxation

Question 19

What is GPM likely to like compared to OPM?

Answer 19

GPM will always be higher than OPM as it doesn’t include overheads. GPM and OPM can be the same, but only if there are no indirect costs/overhead.

Question 20

How does profit of the year margin compare to OPM?

Answer 20

This will always be lower than OPM as taxation is subtracted from operating profit

Question 21

What are the two major ways to improve profit?

Answer 21

Decrease cost and increase revenue

Question 22

Describe ways you can decrease costs

Answer 22

Switch to area with lower rent
closed stores with low demand
change supply/renegotiate current supplier
make staff redundant
reduce waste
be more efficient by using better technology

Question 23

What are ways to increase revenue?

Answer 23

Lower price/increase price (PED)
Sell more (e.g. by adverts or sale promotion )
Add new features to the products,
widen distribution channels
improve physical environment to make store more enticing

Question 24

What are two ways to increase profit margin

Answer 24

Lower costs
Increase selling price

Question 25

Define return on investment

Answer 25

Measures the operating profit in relation to the amount of capital invested in the firm