Profitability

Question 1

What is profit?

Answer 1

differance between the revenue of a business and the costs generated by the business during a period of time

Question 2

How do you calculate profit?

Answer 2

revenue - total costs

Question 3

What two ways can profit be measured?

Answer 3

• absolute terms

- relative terms

Question 4

What is absolute terms of measuring profit?

Answer 4

Using volume or a value

EG, £5000 profit in one year

Question 5

What is relative terms of meausuring profit?

Answer 5

• profit margins, expressed as a %

10% profit margin

Question 6

WHat are the three differant types of profit?

Answer 6

• net profit
• gross profit
• operating profit

Question 7

What does cost of sales mean?

Answer 7

variable costs ( raw materials)

Question 8

What are expenses or overheads ?

Answer 8

fixed costs

Question 9

How do you calculate gross profit?

Answer 9

revenue - cost of sales

Question 10

How do you work out operating profit?

Answer 10

gross profit - fixed costs

Question 11

How do you work out net profit?

Answer 11

operating profit - net finance and tax

Question 12

Define gross profit?

Answer 12

• raw measure of profit that shows what is left over after taking away the costs directly involved in making a product or providing a service

Question 13

Define operating profit?

Answer 13

profit generated by the normal operating activities of the businmes

Question 14

Define net profit?

Answer 14

• shows profit net of all costs

Question 15

how to work out profit margins ?

Answer 15

• profit / sales revenue x 100

Question 16

What does the operating profit margin show?

Answer 16

• how effectively a busines turns its sales in profit
• how effectively a business is run
• whether a business is able to add value

Question 17

WHat five ways can you improve profit?

Answer 17

• increase quantity sold
• increase selling price
• reduce VC per unit
• increase output
• reduce fixed costs

Question 18

How will increasing quantity sold increase profit and why may it not work?

Answer 18

• higher sales volume, higher revenue

- compeitors are likely to respond

Question 19

How does increasing selling price lead to higher profit and why may it not work>

Answer 19

• higher selling price, higher profits

- competitors may respond

Question 20

What are two more complex ways of increasing profit?

Answer 20

• reduce product range

- outsource non essential functions

Question 21

What is the differance between profit and cashflow?

Answer 21

• profit is deifferance between total revenue and total costs
• cash flow is the differance between total cash inflows and total cash outflows

Question 22

WHat three ways does cash flow differ from profit?

Answer 22

• timing differances
• way fixed assets are accounted for
• cash flows arising from the way the business is finances