Profit (2.3.1) Flashcards
What is profit?
The money left over after all costs have been accounted for. There are several different types of profit
What are the different types of Profit?
-Gross Profit
-Operating Profit
-Net Profit
What’s the equation for Gross Profit?
Revenue-Cost of goods sold
What’s the equation for Operating Profit?
Revenue-Operating costs
What’s the equation for Net Profit (Profit for the year)
Operating Profit- Tax and Dividends
What are the Cost of Goods Sold?
The direct cost of producing a finished product
What are example of the Cost of Goods Sold?
-Raw Materials
-Production Worker Wages
What are the Operating Expenses?
The Indirect cost of producing a finished product
What are the examples of Operating Expenses?
-Rent
-Advertising
-Office Worker Salaries
-Packaging
What is a Profit Margin?
Is the amount by which the sales revenue exceeds the costs. They can be calculated for each type of profit
What’s the equation for Gross Profit Margin?
(Gross Profit/ Revenue)x100
What’s the equation for Operating Profit Margin?
(Operating Profit/Revenue)x100
What’s the equation for Net Profit Margin?
(Net Profit/Revenue)x100
What are the three ways you can improve Profit?
-Increase Revenue
-Decreasing Cost of Goods Sold
-Decreasing Operating Costs
How can you Increase revenue to improve Profit?
-Pricing Strategies
-Branding
-Marketing
-Extension Strategies
-New Products/Features
How can you decrease cost of goods sold to improve Profit?
-Improve Productivity
-Lower production wages
-Production technology
-Cheaper Raw materials
-Off-Sharing
How can you decrease operating costs to improve Profit?
-Less salaries for workers
-Less marketing
-Cheaper Rent
-Outsourcing
-Work from home
How can a business obtain higher profit?
-Increase in new machinery
-Increase Advertising
-Improve Branding
-Expand to new areas
-Improve R + D
-Increase Capacity
-Improve skill of workers
-Increase prices
-Reduce expenses
What is the statement of Comprehensive Income (Profit + Loss Account)?
It’s an end of year financial statement that shows all of a businesses income and expenses over the previous twelve months. Each type of profit is calculated within the statement and the previous year’s figures are also shown for comparison purposes
What is the difference between Profit and Cash?
Profit is simply the difference between revenue generated and business costs whereas cash is measures by taking into account the full range of money flowing in and out of a business
