Profitability

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  • Created by: konradeke
  • Created on: 31-03-16 10:45
What are the 3 profitability ratios?
Gross profit margin, Operating profit margin and Profit for the year margin
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How do you calculate gross profit margin?
Gross profit / Sales revenue X 100
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How do you calculate operating profit margin?
Operating profit / Sales revenue x 100
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How do you calculate profit for the year margin?
Profit for the year / Sales revenue x 100
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How can profitability be increased?
Sell the same quantity but at a higher price, sell more at the current price, sell the same at the same price but reduce costs
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What issues could occur from selling the same at a higher price?
May have to spend more on maintaining brand image, May lose customers, If competitors are cheaper then they could lose their market share
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What issues could occur from selling more at the current price?
How can you attract new customers, Is there a new market to enter, Will you have to spend more on marketing, How can you encourage existing customers to buy more?
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What issues could occur from selling at the same price but reducing costs?
Will you lose customers?, Will quality be affected?, Will image be tarnished?
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Other cards in this set

Card 2

Front

How do you calculate gross profit margin?

Back

Gross profit / Sales revenue X 100

Card 3

Front

How do you calculate operating profit margin?

Back

Preview of the front of card 3

Card 4

Front

How do you calculate profit for the year margin?

Back

Preview of the front of card 4

Card 5

Front

How can profitability be increased?

Back

Preview of the front of card 5
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