Profit Measuring and Increasing Profit 0.0 / 5 ? Business StudiesFinancial PlanningASAQA Created by: SophCreated on: 26-05-14 13:42 Profit Total Revenue + Total Cost How to increase: Increase products sold Increase profit on each product, decrease per unit costs and increase price 1 of 6 Profit Margins (Profit/Total Revenue) x 100 Amount of total revenue that is kept as profit To increase PM, reduce costs or add value. 2 of 6 Gross Profit Total Revenue-Variable costs Gross profit margins: (GP/TR) x 100 Gross profit as percentage of total revenue If VC falls, GPM will increase 3 of 6 Net Profit Total Revenue-Total Cost Net Profit Margin (NP/TR) x 100 Both VC and FC must fall in order to increase Increasing profit margins: Reduce VC where appropriate Increase price Reduce VC 4 of 6 ROCE Is the amount of profit gained from an investment as a percentage of the capital invested. (Net Proft/Capital Invested) x 100 Used to see how profitable an investmenr is or how efficient management is 5 of 6 Difference bewteen Cash & Proft Profitable firms may be short of cash because: Cash is tied up in stocks and this cannot be sold in the short term Cash tied up in debtors/dividends Large amount of cash upfront whent buying a fixed asset 6 of 6
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