Profit 📈 Flashcards
How May we achieve a higher gross margins be from a lower one?
may mean there is an increase in raising revenue relative to cost of sales
may be an increase if there was a cutting cost of sales may be achieved by finding cheaper suppliers or key materials
Why is a higher or increasing operating margin preferred?
Because more money is made on each £1 of sales showing in profitability
What is the statement of comprehensive income?
That shows the income and expenses of a business during the financial year
How do we calculate profit for the year
Net profit margin?
Net profit before tax /revenue * 100%
What is better higher margins on lower margins 
Higher 
How do we calculate gross profit margins
gross profit /revenue * 100%
How do we calculate the operating profit margin?
Operating profit/ revenue * 100%
Why would a business want to improve profitability?
Benefits stakeholders return on capital can increase by making profit the same level as investment achieved by grow funded externally using fresh capital
improve performance profit margins are raised
what are the 3 ways we can improve profitability?
Raising Prices - if we do this and we get more revenue for every unit sold because remaining the same probability
but approved however price may impact on the level sales demand will fall
Lower costs - by buying cheaper resources using existing resources
however may affect the quality of your products or if it’s labour may be disruptive
Using existing resources - efficiently this could be freezing labour productivity or business may be introducing you working practices are use the current resources improve efficiency upgrade machinery reduce waste
however original workers may resist new working practices
Reducing other expenses
Reducing staffing levels, relocating to cheaper premises or changing utility companies can reduce expenses
Reducing staffing levels may affect staff morale and negatively affect productivity
Relocation costs can outweigh some benefits of moving to a cheaper location
Replacing inefficient or outdated equipment may require staff training
Reducing one-off costs and interest charges
Delaying the purchase of fixed assets, entering leasing arrangements, or restructuring borrowing can reduce costs
Delaying purchases of new fixed assets (e.g.machinery or vehicles) may negatively impact capacity utilisation as a result of increased breakdowns and maintenance of the old equipment
The leasing of equipment (e.g. photocopiers) can reduce one-off purchase costs but the business never owns these assets which weakens the balance sheet
Restructuring borrowing can result in lower monthly payments but requires lenders to agree to new terms, which they may not be willing to do
What is the distinction between cash and profit?

Profit is simply the difference between revenue generated and business costs
Cash is measured by taking into account the full range of money flowing in and out of a busines
How do we calculate profit for the year?
Operating profit - interest and exceptional cost
How do you calculate profit for the year after tax?
Profit for the year - Tax
What are share holder interest in the state of comprehensive income ?
Evals the Performance of the business

Interested in profits earned, business growth and dividend payments
What are employees interest in the state of comprehensive income ?
Interested in profits earned and potential for wage increases and job stability
Why are my managers and directors be interested in the statement of comprehensive income?
Interested in key performance data such as an improvement in sales revenue and net profit
Why may suppliers be interested in the statement of comprehensive income?
Interested in the continued success of the company the are supplying
determine the level of trade credit offered to businesses
Why is the government interested in the statement of comprehensive income?
Used to determine how much tax is payable
Why is the community interested in the statement of comprehensive income ?
Interested in the stability of the business- for jobs in the community.
firm is generating enough profit to perhaps approach them for local sponsorship
What is The Statement of Financial Position?
shows the financial structure of a business at a specific point in time
What does the statement of financial position identify? 
assets, liabilities and capital (money) used to fund the business
How May shareholders use a balance sheet or statement of financial position?
Used to calculate the working capital of the business and determine its solvency
Used to determine the value of a business which helps a judgement on whether their investment is growing
How May managers and directors use a balance sheet or statement of financial position?
Used to identify the financial position of the business at a given point in time
Useful to assess the working capital
determine if there are enough liquid current assets to pay its bills
Provides information on the capital structure of the business which helps guide decisions on whether to raise further funds through borrowing or via other means (e.g. share issue)
How many suppliers and creditors use balance sheets?
Used to judge the solvency of the business to determine the risk when offering firms trade credit
Businesses with low levels of working capital may find it difficult to pay short-term debts and so suppliers may offer trade credit, but with stricter terms
How many employees use balance sheets ?
Is the business financially stable or are jobs at risk?
Has the businesses performance improved or worsened?
