Measuring and Increasing Profit

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  • Created by: Soph
  • Created on: 26-05-14 13:42


Total Revenue + Total Cost

How to increase:

  • Increase products sold
  • Increase profit on each product, decrease per unit costs and increase price
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Profit Margins

(Profit/Total Revenue) x 100

Amount of total revenue that is kept as profit

To increase PM, reduce costs or add value.

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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
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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
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  • 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
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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
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