Profit Flashcards
What is profit
It is the financial gain of a business through trading and can be found by deducting expenditure from revenue
What is the formula for gross profit
Revenue - cost of sales
What is operating profit
Gross profit - fixed overheads
Formula for the profit for the year (net profit)
Operating profit - net financing and costs
Statement of comprehensive income structure
1) revenue (sppu x q)
2) costs of sales
3) gross profit (revenue - COS)
4) Fixed overheads
5) Operating profit (gross profit- fixed overheads)
6) Corporation tax
7) Net profit (operating profit- financing and tax)
How can probability be measured
Using gross profit margin, operating profit margin and profit of a year (net profit) margin
Profitability- states profit as a % of sales
Calculate gross profit margin
Gross profit / sales revenue - 100
Calculate operating profit margin
Operating profit / sales revenue x 100
Calculate net profit margin
Profits for the year / sales revenue x 100
Two ways of increasing profits
Increase revenue, decrease costs
How can we decrease costs in order to improve profit
Cutting the costs without damaging the quality in any way, this can be done by: better bargaining with suppliers, better ways of producing may lead to higher profits per sale, restructuring, developing and redundancies
When decreasing the costs the company needs to be careful to ensure that reducing costs does not lead to a deterioration of the service or quality of the product.
How can we increase the price in order to improve profitability?
This would increase the profit by sale, but the danger is that the sales overall may fall so much that the overall business profits are reduced
The impact of your increase in price depends on the price elasticity of demand, the more price elastic it is, the greater the fall in demand will be.
Difference between cash and profit
Cash is money available. Profit is the money generated by selling profits, revenue - costs.
Profit is recorded straight away but cash will not be recorded until it is paid out or received which could be in a different trading year.
A business can trade for many years without a profit but a profitable business may go bust if it runs out of cash to pay a supplier or staff.
To impRove profitability a business must either increase revenue or reduce costs but if owner introduce cash via savings or a loan this will not affect the profit figure.
