1. Gross profit is a good benchmark between products, so a business can calculate which products make the better profit.
2. Sales Revenue - Variable Costs
1 of 12
Net Profit (NP)
1. definition
2. calculation
1. Businesses can calculate their net profit by taking their sales revenue figure and deducing all fixed and variable costs associated with selling the product or providing the service.
1. This calculation is a percentage. It tells the business how profitable it is and if it is performing well. The GPM percentage needs to be compared.
2. Gross Profit / Sales Revenue x 100
3 of 12
Net Profit Margin (NPM)
Net Profit / Sales Revenue x 100
4 of 12
Average Rate of Return (ARR)
1. definition
2. calculation
1. A business may have to decide between two projects, it cannot do both so will need to know which one will be the most profitable. The business will calculate the ARR of both projects and compare them. The project with the best result will go ahead.
2
5 of 12
How to Calculate ARR
(3 step method)
1. Add number of years and divide by number of years ( e.g. 12 + 14 + 12 / 3 )
2. Subtract ICO and divide by ICO
3. Multiply by 100
6 of 12
1. Sales Revenue
2. Total Costs (outflows)
1. price x quantity
2. variable costs + fixed costs
7 of 12
Fixed cost (a) definition and (b) examples
(a) set amount/always have to pay and don't vary with output
(b) rent, utility bills, salaries, subscription, internet
8 of 12
Variable Costs (a) definition and (b) examples
(a) vary with output
(b) wages, raw materials, selling (returns and delivery), packaging, process fees for internet
9 of 12
QUESTIONS
1. Gross Profit when SR is £350 and VC is £125
2. GPM when Sales of £5000, VC of £2000 and FC of £750
1. Businesses can calculate their net profit by taking their sales revenue figure and deducing all fixed and variable costs associated with selling the product or providing the service.
2. Sales Revenue - (Fixed Costs + Variable Costs)
Back
Net Profit (NP)
1. definition
2. calculation
Card 3
Front
1. This calculation is a percentage. It tells the business how profitable it is and if it is performing well. The GPM percentage needs to be compared.
2. Gross Profit / Sales Revenue x 100
Back
Card 4
Front
Net Profit / Sales Revenue x 100
Back
Card 5
Front
1. A business may have to decide between two projects, it cannot do both so will need to know which one will be the most profitable. The business will calculate the ARR of both projects and compare them. The project with the best result will go ahead.
Comments
No comments have yet been made