topic 2.3.3 Flashcards
define profit?
the financial gain a business makes after subtracting expenses from revenue
How do you calculate profit?
selling price - cost price
How do you calculate gross profit?
revenue - cost of sales
How do you calculate operating profit?
gross profit - operating expenses
How do you calculate net profit?
operating profit - taxes and intrest
what are ways to increase profit?
increase revenue - raise prices
reduce costs - improve efficiency
imprive productivity with better training and motivation
how do you calculate gross profit margin?
gross profit / revenue
x 100
how do you calculate operating profit margin?
operating profit / revenue
x 100
How do you calculate net profit margin?
net profit / revenue
x 100
What are ways to improve profitability?
cut unnecessary expenses
reduce production costs
improve efficiency
What is liquidity?
a business’s ability to meet short-term financial obligations
what is the statement of financial position?
document that shows a companys financial position at a given time
How do you calculate current ratio?
current assets / current liabilities
How do you calculate acid test ratio?
current assets - inventory / current liabilities
What are ways to improve liquidity?
sell assets
negotiate better supplier
adopt just in time inventory management
How do you calculate working capital?
current assets - current liabilities
What is business failure?
it is when a company cannot continue operations due to financial difficulties
What are some internal causes of business failure?
Poor Cash Flow Management: Lack of liquidity to cover expenses.
Overestimation of Sales: Producing too much stock, leading to cash shortages.
Overtrading: expanding too quickly without sufficient finance.
Poor Inventory Control: Overstocking leads to high storage costs.
Poor Marketing: Ineffective promotions reduce sales.
Poor quality: leads to customer dissatisfaction and loss of sales.
What are some external causes of business failure?
Market conditions: changes in consumer demand or industry trends
Competition: losing market share to competitors
Economic Factors: Recessions or inflation impacting spending power
Exchange Rates: Currency fluctuations affecting import/export costs.
Interest Rates: High borrowing costs reduce profitability
Government Regulations: Compliance costs or legal restrictions
Supplier Problems: Delays or price increases affect production
Natural event: Events like pandemics, natural disasters, or supply chain disruptions
