TOPIC 2.4 Making financial decisions

Question 1

What is gross profit and net profit?

Answer 1

Gross profit is the profit a firm makes after the cost of making products is taken into account.
Net profit is the profit a firm makes when all expenses (salaries, rent) are taken into account.

Question 2

Calculation for gross profit

Answer 2

revenue - cost of sales

Question 3

Calculation for net profit

Answer 3

NP = GP - (operating expenses + interest)

Question 4

Calculations for net profit margin

Answer 4

NPM = (net profit * 100)/ Revenue

Question 5

Average rate of return

Answer 5

The return of profit from a proposed capital project.