(PAPER 2) 2.3.1 profit Flashcards
gross profit definition and formula
profit made after the direct costs have been made
>gross profit: revenue - cost of sales
revenue: (income received form sales) turnover
cost of sales: e.g. stock, raw materials.
operating profit definition and formula
profit made after direct and indirect costs have been met
operating profit: gross profit- other operating expenses
profit of the year (net profit)
operating profit + exceptional items or other operating expenses - interest
gross profit margin formula
gross profit/revenue x 100
> Profit left after cost of sales are deducted
> Looking for the Highest %= business efficient with variable costs
> Depends on the type of business= Important for a manufacturing business because they have several variable costs they have to pay
operating profit margin formula
operating profit/revenue x100= %
> Profit left over after all costs have been deducted
> Highest %= controlling fixed costs
> How competitive the maker is
profit of the year margin formula
profit of the year/ revenue x100= %
> % profit left over after interest/exceptional items have been paid
> Highest % check if exceptional items included
> Amount of interest paid/exceptional items
roce formula
Operating profit/capital employed x100
CE= Total equity + non-current liabilities
TE= share capital + profit
revenue definition
the income received by a business from sales
cost of sales definition
the direct costs of a business e.g. stock, raw materials
interest definition
profit made after the direct costs have been met.
revenue- cost of sales
operating expenses (overheads) definition
the indirect costs of a business (rent, rates)
exceptional items definition
not from normal day to day activities- received from normal day to day activities- received from the sales of an asset or a cost e.g. restructuring
profit quality
the degree to which the profit figure is sustainable in the future (% day to day activity - non-routine activity)
profitability definition
how much profit made in relation to revenue
ways to improve profitability
> reduce costs- increase productivity and efficiency, change suppliers, use existing resources more efficiently
increase prices- higher turnover=
+ more revenue per item sold= increased profit margin
- people may not be prepared to pay cause price elasticity of demand is elastic
depends on their income
