Profit Flashcards
3 types of profit
- Operating profit
- Gross profit
- Net profit
Gross profit
The amount left over when the cost of sales is subtracted from total revenue
Cost of sales in directly related to making the product.
Gross Profit formula
Gross profit= Sales revenue - Cost of sales
Operating profit
Considers both cost of sales and operating expenses
If a businesses gross profit is increasing but the operating profit is decreasing, it usually means the business is not controlling its costs
Operating profit formula
Operating profit = Gross profit - Other operating expenses
Net profit
Also known as profit for the year
Takes into consideration the cost of any interest the business has to pay for borrowing money
Net profit formula
Net profit = Operating profit - Interest
Statement of Comprehensive Income
Also known as profit and loss account
Shows how much money has been coming in the business ( revenue) and how much has been coming out. (expenses)
Helps calculate the three types of profit.
Profit margins
Shows how profitable a business is
Measure the relationship between profit made and the revenue
Shown as a percentage
Gross profit margin formula
Gross Profit Margin= (Gross profit/ revenue) x 100
Operating profit margin
Operating Profit Margin= (Operating profit/ revenue) x 100
Net Profit margin formula
Net Profit Margin= (Net profit/ revenue) x 100
How to increase profit margins
Improve them by increasing their revenue
Increase prices if the demand is high
Reduce prices if demand is low
