Profitability Flashcards
What are the types of profit margins?
gross profit margin
operating profit margin
net profit margin
What is gross profit margin?
(gross profit / sales revenue) x100
What is operating profit margin?
(operating profit / sales revenue) x100
What is net profit margin?
(net profit / sales revenue) x100
What is R.O.C.E
Return On Capital Employed
What is the equation for R.O.C.E?
operating profit / capital employed
What is the capital employed equation?
Total equity + non-current liabilities (may be negative but still need to add it)
What is the definition of R.O.C.E?
A ratio that measures the efficiency with which the firm generates profit from the funds invested in the business.
What is profitability?
the percentage of profit in relation to sales revenue
What is desired about the margins?
for them to be as high as possible
What is an example of profit margin (net)?
If the net profit margin is 50%
If sales revenue = £1
Then 50p would be net profit
What is cash?
it is the day-to-day money that runs a business
liquidity
What is profit?
annual income statement
revenue - (VC+FC) = Net profit
