profit margins - teacher 1 task 9

Question 1

profitability ratios

Answer 1

measures the relationship between gross profits and sales

Question 2

Ratio 1 - gross profit margin

Answer 2

calculates the amount of profits made from each £ of sales revenue

Question 3

gross profit margin equation

Answer 3

( gross profit / sales revenue ) x100

Question 4

gross Proft margins better higher or lower

Answer 4

higher the better - means more profits - after costs are deducted

Question 5

how to improve gross profit margin

Answer 5

• raising sales while keeping costs of sales the same
• redoing the cost of sales made whilst maintaining the same level of sales revenue

Question 6

Ratio 2 - operating profit margin

Answer 6

measures the extent to which sales revenue is converted into operating profit

Question 7

operating profit margin equation

Answer 7

( operating profit / sales revenue ) x100

Question 8

What is the difference between the gross profit margin and the operating profit margin

Answer 8

The difference between both illustrates the extent to which the business is controlling its overheads (or expenses)

Question 9

How to improve the operating profit margin

Answer 9

• raising sales revenue whilst keeping expenses low
• reducing expenses whilst maintaining the same level of sales revenue