Profit – the difference between the income of a business and its total costs.
PROFIT = REVENUE – TOTAL COSTS
Profitability – the ability of a business to generate profit or the efficiency of a business in generating profit.
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Net Profit
Net profit margin
This measures net profit as a percentage of sales. Net and operating profits are considered the best measure of a firms profit, whiles sales turnover is an excellent measure of scale
Net profit margin (%) = net profit before tax/ sales (turnover) x 100
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Return on Capital
Return on capital
Ratio showing net profit as a percentage of capital invested**
** all of the money provided to the business by owners
Return on capital (%) net profit before tax /capital invested x 100
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Method of improving profits and profitability
Methods of improving profits and profitability
Many ways of increasing profit:
*increasing the price
*decreasing costs
*increasing sales volumes
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Smaller ways to increase profit
Smaller ways to increase profit/profitability
*investment in fixed assets
*product development
*marketing
*human rescourse stratedgies
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Liquidation
the ability to convert an asset into cash without loss or delay. With a firm being forced to close and sell its assets in order to pay suppliers ect.
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