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level: Gross Profit, Net Profit and Profitability Rates

Questions and Answers List

level questions: Gross Profit, Net Profit and Profitability Rates

QuestionAnswer
What is Gross Profit?-This is simply the Amount of Money made after the Cost of Making the Product have been Taken away from the Revenue [Variable Costs]
What is Net Profit?-This is simply the Profit the Business has when all the Other Expenses have been Paid Off - Not including the Calculation of Gross Profit [Fixed Costs]
What is the Formula for -Gross Profit -Net Profit-Gross Profit = Sales Revenue - Cost of Sales [VC] -Net Profit = Gross Profit - Other Operating Expenses and Interest [FC]
What is a Ratio Analysis?-This can show that the Profit made is Accentually good Business Performance or Not -They simply see how much of the Revenue is turned into Profit, in a Percentage
Formula for Gross Profit Margin?Gross Profit Margin [GPM] = Gross Profit [GP] / Sales Revenue x 100 [For the Percentage]
How can you Increase the Sales Revenue?-Having the Selling Price Lower can lead to more Demand for it, meaning more Sales -Having the Selling Price Higher can lead to more Revenue, for the Same Variable Costs -Increasing the Advertising and Knowledge of the Product can Increase the Sales of it, however it will affect the Net Profit as Advertising is Expensive
How can you Lower the Cost of Sales [VC]-Cutting down the Price Paid to Suppliers -Changing the Suppliers if the New Supplier has Better Deals -See their Existing Product and try to Produce them Cheaper
Formula for Net Profit Margin?-Net Profit Margin [NPM] = Net Profit [NP] / Sales Revenue x 100 [For a Percentage]
How can you Improve the Net Profit Margin?-Lowering the Selling Price, can Increase the Sales Revenue therefore meaning more Net Profit can be Generated -Increasing the Selling Price can Increase the Sales Revenue therefore meaning more Net Profit can be Generated -Delayering the Organisation Structure means less Money to pay Workforce -Freeze the Recruitment - Stops the Costs for those Processes -Move to a Cheaper Location
Why is the Net Profit Margin better than the Gross Profit Margin, in terms of Performance Analysing?-This is because it gives a Better Indicator of the Performance of the Business, as it takes in Consideration ALL the Costs to make the Product, and keep the Business running
How else can you Analyse Financial Performance?-You can compare your Profits with: -Previous Figures -Targets -Competitors Performances -Stakeholders Objectives