Profit 2.3.1

Question 1

Define profit.

Answer 1

Profits are the surplus of revenue over costs.

Question 2

What is the calculation to find Profit?

Answer 2

total revenue – total costs = Profit

Question 3

What are the three types of Profit?

Answer 3

• Gross profit
• Operating profit
• Profit for the year (Net Profit)

Question 4

What is a Statement of comprehensive income?

Answer 4

A formal financial document that summarises a business’ trading activities and expenses to show whether it has made a profit or loss

Question 5

What is the calculation for Gross profit?

Answer 5

Gross profit = sales revenue – cost of sales

Question 6

How do you calculate Operating profit?

Answer 6

Operating profit = gross profit – expenses

Question 7

What is Gross profit?

Answer 7

Gross profit is a company’s profit before operating expenses.

Question 8

What is Operating profit?

Answer 8

A profit from business operations before deduction of interest and taxes.

Question 9

What is Profit for the year?

Answer 9

The amount of profit the company made in a year.

Question 10

What is Profitability?

Answer 10

Profitability measures the financial performance of a business by comparing profits achieved to a second variable e.g. revenue.

Question 11

What are the 3 profitability ratios?

Answer 11

• Gross profit margin
• Operating profit margin
• Profit for the year (net profit) margin

Question 12

What is Gross profit margin?

Answer 12

Gross profit margin (GPM) is a measure of a firm’s profitability by looking at the relationship between gross profit and sales revenue

Question 13

How do you calculate Gross profit margin?

Answer 13

Gross profit / Sales revenue x 100

Question 14

What is Operating profit margin?

Answer 14

Operating profit margin (OPM) is a measure of a firm’s profitability by looking at the relationship between operating profit and sales revenue

Question 15

What is the calculation for Operating profit margin?

Answer 15

Operating profit / Sales revenue x 100

Question 16

What is the profit of the year (net profit) formula?

Answer 16

Net profit / sales revenue x 100

Question 17

What is the profit of the year margin formula?

Answer 17

Profit of the year/ sales revenue x100 = %

Question 18

State 3 ways of increasing profitability

Answer 18

• Sell the same quantity but at a higher price.
• Sell more at the current price.
• Sell the same at the same price but reduce costs.

Question 19

What’s the difference between profit and cash?

Answer 19

Not all cash paid into a business is profit. A business must pay its costs from the money that comes into it. Once all costs have been deducted from all revenue, the amount that is left is the business’ profit.