Profitability Flashcards
1
Q
Define profitability
A
Profitability is the ability of a business to generate excess income to cover its expenses.
2
Q
Why is it important for a business to be profitable
A
- To continue operating and to sustain in the long term
- To attract other investors
- To distribute profits to the owners for their contributions to the business.
3
Q
Goss profit margin
A
Gross profit
——————- × 100
Net sales revenue
4
Q
Profit margin
A
Profit for the year
—————————- × 100
Net sales revenue
4
Q
Mark-up on cost
A
Gross profit
——————- × 100
Cost of sales
5
Q
Ways to improve profitability of a business
A
- Sell goods at lower price.
- Buy goods at lower cost price by buying in bulk to obtain trade discount.
5
Q
Return on equity
A
Profit for the year
————————– × 100
Average equity
