Profit

Question 1

what is net profit also known as?

Answer 1

Profit for the year

Question 2

What is revenue also known as?

Answer 2

Turnover

Question 3

What are the different ways accountants define profit?

Answer 3

1.Gross profit
2.Operating profit
3.Profit for the year (net)

Question 4

a)What is gross profit

b)how is it calcluated?

Answer 4

a)It is the difference between revenue and cost of sales (direct)

b) gross profit=revenue- cost of sales

Question 5

What is a direct cost?

Answer 5

The cost of buying in stock to resell

Question 6

a)What is operating profit?

b)how is it calculated?

Answer 6

a)The difference between gross profit and business overheads (indirect)

b)operating profit=Gross profit-Operating expenses

Question 7

a)What is profit for the year (net)

b)How is it calulated?

Answer 7

a)The difference between operating profit and interest and any other exceptional costs

b)Profit for the year=operating profit-interest (and exceptional cost)

Question 8

What is the statement of comprehensive income?

Answer 8

A financial document showing a company’s income and expenditure over a particular time period, usually one year
(used to calculate different types of profit)

Question 9

What is a profit margin?

Answer 9

Measuring the size of profit in relation to revenue/turnover

Question 10

a)what is gross profit margin?

b)How do you calculate gross profit margin?

Answer 10

a)Gross profit expressed as a percentage of revenue

b)gross profit/revenue x 100

(the higher the better)

Question 11

How is gross profit margin increased?

Answer 11

-Raising revenue relative to the cost of sales by increasing price
-cutting the cost of sales by finding cheaper suppliers

Question 12

What does gross profit margin depend on?

Answer 12

the type of industry
-the quicker the turnover of inventory the lower the gross profit margin needed eg supermarkets

Question 13

What is operating profit margin?

Answer 13

Operating profit expressed as a percentage of revenue
=gives an idea of how much profit is made before interest/taxes

Question 14

How do you calculate operating profit margin?

Answer 14

Operating profit/revenue x 100

higher is preferred

Question 15

What is profit for the year margin?

Answer 15

Net profit before tax, expressed as a percentage of revenue

Question 16

How is the profit for the year margin calculated?

Answer 16

net profit before tax/revenue x 100

Question 17

How can profit margins be raised?

Answer 17

1.Increase revenue
2.Lowering costs

Question 18

What are the ways to increase revenue?

Answer 18

-Increase prices
-create awareness and desire through marketing
-add value to the product (features)

Question 19

What are the benefits and drawbacks of raising prices?

Answer 19

+more revenue for every unit sold

-impact on demand=sales (however price elasticity of demand?)
-how competitors will react

Question 20

what are the ways a business could lower costs?

Answer 20

1. buying cheaper resources
   2.using existing resources more efficiently
   3.eliminate unprofitable product lines
   4.Lower overheads

Question 21

What are the benefits and drawbacks of buying cheaper resources?

Answer 21

+cheaper labour

-materials may be off low quality

-unreliable eg abroad

Question 22

Why may a business be unprofitable?

Answer 22

-no demand for product
-selling at wrong price
-poor management of costs

Question 23

What is the difference between cash flow and profit?

Answer 23

cash flow=inflow-outflow

profit=revenue-costs

Question 24

What are the ways in which profit and cash flow are different?

Answer 24

TIMING=problem of managing cash is that business expenses are often incurred before revenue is generated or recieved
1.Offering credit for sale- rev but not inflow
2.depreciation of non current assets- car dep=cost
3.Bank loan-inflow but long term cost