Measuring and increasing profit

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  • Created by: hamishc
  • Created on: 18-04-16 21:24
What is the formula for % change in profits?
Current year - previous years profit / previous years profit x 100
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Name 4 ways a business may try to increase its profits?
Increasing prices, reducing cost of production, advertising, improving product quality.
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What are the 3 different measures of profit?
Gross profit, operating profit, profit for the year.
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What is gross profit?
The amount left over when the cost of sales (cost of making the product) is subtracted from sales revenue.
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Gross profit equation?
Gross profit = Sales revenue - Cost of sales
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What is operating profit?
Revenues and costs of regular trading, but not revenues or costs from one off events. It takes into account sales revenue, cost of sales and operating expenses (such as admin costs)
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Operating profit equation?
Operating profit = sales revenue - cost of sales - operating expenses
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What is profit for the year?
Profit after all factors are considered, e.g. sales revenue, cost of sales, operating expenses, operating profit, other profits, tax, and net finance costs.
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Profit for the year equation?
Profit for the year = operating profit +other profit - net finance costs - tax.
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What is profitability?
The amount of profit relative to revenue or investment.
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What is a profit margin?
A measure of the relationship between profit made and the sales revenue.
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What is the profit margin for any of the profit types?
Type of profit (e.g. gross profit) / sales revenue x100
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What is the issue of having a decreasing operating profit margin compared to a gross profit margin when comparing the two?
A business like this may be struggling with operating expenses.
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What is the advantage of a high profit for the year margin?
Attractive to existing and potential shareholders as it indicates they may receive high dividends.
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Other cards in this set

Card 2

Front

Name 4 ways a business may try to increase its profits?

Back

Increasing prices, reducing cost of production, advertising, improving product quality.

Card 3

Front

What are the 3 different measures of profit?

Back

Preview of the front of card 3

Card 4

Front

What is gross profit?

Back

Preview of the front of card 4

Card 5

Front

Gross profit equation?

Back

Preview of the front of card 5
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