Profit
- Created by: Izzie
- Created on: 12-05-17 09:14
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- Profit
- 3 types = gross, operating & profit for the year
- Shown on a statement of comprehensive income which is a financial document summarising business trading activity & expenses to show if loss or profit's made
- Profitability has 3 different ratios...
- Gross Profit Margin (GPM)
- A measure of a firm's profitability by looking at the relationship between gross profit & sales revenue
- If low/falling it can indicate 1. sales are declining 2. not managing cost of sales effectively
- Operating Profit Margin (OPM)
- A measure of a firm's profitability by looking at the relationship between net profit & sales revenue
- If low/falling it can indicate 1. sales are declining 2. not managing expenses effectively
- Profit for the Year Margin
- Measure of a firm's profitability by looking at the relationship between sales revenue and profit for the year
- If low/falling it may indicate 1. change in tax rates 2. change in interest rate 3. gross profit or operating profit in decline
- Gross Profit Margin (GPM)
- Improving profit and profitability
- Sell same amount at higher price
- Done with good customer loyalty and inelastic products
- Consider: what do competition charge? do you need to spend more on maintaining brand image?
- Sell more at current price
- Sell in more places and you can give out samples
- Consider: can you attract from competition? new market to enter? do you need to spend more on marketing?
- Sell same at same price but cut costs
- Change supplier or cut wages
- Consider: will you lose customers? will quality be affected? will image be tarnished?
- Sell same amount at higher price
- Difference between cash flow & profit
- Profit= exists in financial records when total revenue's greater than total costs
- Cash= physical existence of money within the business
- Cash flow= timings of cash flowing in & out the business
- 3 types = gross, operating & profit for the year
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