profit Flashcards
what is profit?
the money left over after costs have been accounted for
what is gross profit?
the difference between revenue and the costs directly related to production
how do you calculate Gross profit?
revenue - cost of sales
what is operating profit?
the difference between the gross profit and the indirect expenses involved in operating the business
how do you calculate operating profit?
gross profit - operating expenses
what is the net profit?
the difference between the operating profit and any interest paid and received, as well as any one-off costs
how do you calculate the Net Profit?
operating profit - (Net interest + Exceptional costs)
what is the statement of comprehensive income (profit and loss)?
an end of year financial statement that shows all of a businesses income and expenses over the previous twelve months
what is a profit margin?
the amount by which sales revenue exceeds the costs
how can you better understand business performance?
by comparing profit margins from previous years
what is the Gross profit margin?
shows the proportion of revenue that is turned into the gross profit
what is the gross profit margin expressed as?
a percentage
how do you calculate the gross profit?
(gross profit / revenue) x 100
what is the operating profit margin?
shows the proportion of revenue that is turned into operating profit
how is the operating profit margin expressed?
as a percentage
how do you calculate the operating profit margin?
(operating profit / revenue) x 100
what is the net profit margin?
shows the proportion of revenue that is turned into net profit before tax
what is the net profit margin also known as?
profit for the year margin
how is the net profit margin expressed?
as a percentage
how do you calculate the net profit margin?
(profit for the year / revenue) x 100
what are the main ways to improve profitability?
increase prices
reduce variable costs
reduce one-off costs and interest
reduce expenses
why will raising prices improve profitability if costs remain the same?
the difference between the selling price and costs is greater
what will happen to revenue when the demand is price elastic
increasing prices will result in lower revenue
what will happen to the revenue when the demand is price inelastic?
increasing prices will increase revenue
