Business 2.3.1 - Profitability

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Gross profit of a business is an absolute number. Number calculated by deducting direct costs from sales revenue. Helpful to meausre the profit in relation to the sales revenue. Gives a relative meausre of profit (profitability).

Profitability can be measured for each of the 3 types of profit identified earlier in the chapter: Gross, Operating and Net:

  • Gross profit margin = gross profit/sales revenue * 100

Comparison can be made with the profitability achieved by other companies

  • Operating profit margin = operating profit/sales revenue * 100

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