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18 Cards in this Set
- Front
- Back
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What are the 3 types of profit? |
Gross profit Operating profit Net profit |
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What is gross profit? |
The profit made from selling products services less any associated cost of production. |
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What is the formula for gross profit? |
Revenue - costs of sales. |
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What is operating profit? |
The profit made by a company after the general expenses (overheads) have been paid out e.g. advertising,electricity,rent |
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What is the operating profit formula? |
Gross profit-operating expenses |
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What is net profit? |
Profit for the year is the profit for the shareholders/business after interest has been paid i.e. interest on bank loans. |
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What is formula for net profit? |
Operating - interest costs |
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What is gross profit margin? |
How much profit was made in relation to revenue, the percentage of revenue that was gross profit. |
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What is the formula for gross profit margin? |
Gross profit÷ revenue ×100 |
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What does the gross profit margin tell us? |
The amount of every pound spent that is profit A higher gross profit margin might be due to: 1) raising more revenue relative to the costs of sales 2) cutting the costs of sales 3) gross profit margins will vary between different industries (without for this in the exam a low gross profit margin may be acceptable for a certain industry) 4) the higher the gross profit margin the better |
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What is operating profit margin? |
How much operating profit was made in relation to revenue: the percentage of revenue that was operating profit. Used to measure a companys pricing strategy and effciency |
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What is the formula for operating profit margin? |
Operating profit ÷ revenue ×100 |
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What does the operating profit margin show us? |
- a higher operating profit margin is prefferred - if the operating profit margins is increasing its earning more profit per £1 of sales. - operating profit margins shows the profitability of sales resulting from regular business. |
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What is net profit margin? |
How much net profit was made in relationship to revenue, the percentage of revenue that was net profit. Shows the profit made on the revenue but taking into account all of the business costs. |
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What is the formula for net profit margin? |
Net profit ÷ revenue ×100 |
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What does the net profit margin tell us? |
- a higher net profit margin is prefferred - net profit margin shows the profitability of sales resulting from regular business after all general business costs have been deducted (its the profit leftover for the owners) - its the bottom line profit figure. - the profit available to shareholders to keep as a dividend or for the company to keep as retained profit. |
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What are the implications of increasing selling prices? |
Raised price so it will get more revenue for every unit sold. If costs remain the same then profitability should improve. However raising prices may cause demand to fall. Raising price is risky. |
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What are the implications of lower costs? |
Buying cheaper resources from new suppliers that offer prices of raw materials and essentials such as telecommunications, electricity, insurance and IT support. Using resources more effciently will lower costs.- raises productivity - upgrading machinery causes better capital productivity this reduces waste. |
