Profit | Theme 2 Flashcards
What is profit?
The reward or return for taking risks and making investments
Basic profit FORMULA
Profit = total sales - total costs
Gross profit FORMULA
Gross profit = revenue - cost of sales
Operating profit FORMULA
Operating profit = gross profit - operating expenses
Profit for the year (net profit) FORMULA
Net profit = operating profit - finance and tax costs
Gross profit margin FORMULA
Gross pofit margin = gross profit / revenue x 100
Operating profit marin FORMULA
Operating profit margin = operating profits / revenue x 100
What does an operating profit margin tell us?
How effectively a business turns sales into profit
Three ways to increase net profit
- Produce more preoducts
- Lower production costs
- Increase prices
Increase quantity sold
Higher sales volume = higher sales. Depends on elastisticy of demand, competitors are likely to respond
Net profit margin FORMULA
Net profit margin = net profit (before tax) / revenue x 100
