Gross profit before any deductions:
selling price-buying price=gross profit
Profit margin= Gross profit/Buying price x 100
Net profit is after all deductions
Net profit= Gross Profit- Total costs
- Over a long period of time
- With its competitors ( maybe interested to see how the competition is doing)
What affects profit or loss?
- The type and size of business (Is it a necessity? Do you have many outlets?)
- The objectives( some aim to earn profit but charties dont)
- The demand for product ( Some are necessities whereas some are just trends)
- The price consumers are willing to pay ( People will pay more for designer stuff)
- Business controls its costs (Pay workers low wage? Using cheaper raw materials?)
- The amout of competition ( Too much competition will lose you profit)
- The cost of setting up a business ( Made need to take up a loan or may find it hard to break into the market so will be in debt before start making profit)
(profit can be seen as a return of investment as still have to pay dividends to shareholders or loans back to banks.)
Cash Flow Forecast
Will try to forecast future events using past experiences or data collected. Estimate how much money they will have in future months is called a cash flow forecast.
Balance carried forward is the difference between the total income(balance brought forward plus income) and the total expentiture.
Balance carried forward= Total income- Expenditure
The one carried forward to the next start of the month is the balance brought forward
If it is in negative numbers this means the business has a negative cash flow.
Negative cash flow:
- May be temporary
- Require business to obtain finance
- Result in busines not being able to buy new things
Why use cash flow forecast?
- Helps to see when the business is likely to not have much money
- To help them plan for the future
- To provide targets for staff
Disadvantages of cash flow:
- Only a short term plan ( next few months)
- The prices may change so different to the forecast
- A new competitor may take away sales
- The tastes and trends of customers may change so you dont sell
- New tech may allow new and better products to be developed.
- Only an estimate
- Forecast will need updating reguarly.
Monopoly is when a business has at least 25 percent of the market. Any business with more is called a monopolist.
How competition can be increased.
- New businesses entering the market
- Privatisation ( gov businesses sold to private owners, e.g gas companies can now compete)
- Selling new products
- Cutting prices
- Increasing advertsing.
How competition can be decreased.
- Taking over competitiors or merging
- Using the marketing mix
- Copyright what they produce
- Collusion(working together)
- Internal growth
Ethics is doing what is morally right or wrong to do.
The government can tax products that cause damage to the enviroment (e.g; car owners pay vehicle excise duties)
The government have set up rules that are designed to prevent damage to the enviroment. (e.g; all cars over 3 years must pass MOT, if too much carbon is realeased it will fail)
Government encourages people to buy eco friendly products by indicating the efficient on electrical goods.
They use carbon permits which only allows businesses to us a specific amout of carbon.
Government gives grants towards the cost of developing greener technologies
Also charge lower rate taxes on biofuels.