Unit 2- Finance- Measuring and Increasing Profits

This will touch on:

  • Increase Profits
  • Cutting Costs
  • Using Capacity Fully
  • Increasing Efficiency
  • Profit
  • Cash Flow
  • Cash Flow Problems
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  • Created by: Cherry
  • Created on: 18-05-12 12:28

Increasing Profits

Increase Profits By:


  • Increasing Prices
  • Cutting costs
  • Using capacity fully
  •  Increasing Efficiency
  •  Profit
  • Cash Flow


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Increasing Prices

Increasing Prices- increase in price means increase in revenue without raising total costs.


But may result to:


> large fall in sales,

> decrease in profit

> the fall in sales changes the increase in price per unit, (depends upon price elasticity of demand).

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Cutting Costs + Expense of quality

Cutting costs-

      lowering costs of production = increase the profit margin =

             resulting in higher profit margins


Expense of quality- a decline in quality could have an adverse effect on the quality of sales + business’s reputation.

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Using Capacity fully- Business has proactive capacity that is not being utilised = profits will be lower.

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Increasing Efficiency- improving efficiency = increased profits; ways of improving efficiency for a business:

> avoid waste in poor quality

> don’t sell products that don’t meet up-to high quality standards

> use staff fully

> use minimum amount of resources to make products

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Profit- surplus of revenue over total costs, over a period of time.


e.g.  business earns (during a financial year), revenue of = £2 million & total costs of £1.5 million = profit of £0.5 million.

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Cash Flow

Cash Flow- cash inflows and cash outflows to and from a business.


Cash Flow Problems:


!           customers slow to pay= delays cash inflows > difficulty in settling bills. This becomes concern if a business does not chase up its customers for payment.

!           long periods of trade credit= allowing customer 30-60 days to settle their accounts > increase sales. ------- But results in a shortage of cash when needed.

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Simplified to bullet points and key words and definitions

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