2.4.1
Gross Profit
Gross profit is an important part in business calculations. Gross profit is equal to revenue minus cost of sales.
Gross profit
- Gross profit = revenue – cost of sales
- The higher a business’ gross profit is, the greater the difference between the price and the cost of sales. This is better for a business as they are making more profit excluding the business’ other costs.
Gross profit margin
- This is gross profit as a percentage of revenue:
- Gross Profit Margin (%) = (Gross Profit/Revenue) x 100
- It shows the average difference between the price that the company are able to charge customers and the costs directly associated with making and selling the product.
- Gross profit margin is a potential indicator of the efficiency of a company using its raw materials and labour during the production process.
Higher gross profit margin is better
- The higher the gross profit margin the better it is for the firm, as they are able to turn a higher portion of revenue into profit.
- It can be used to compare the profitability of products and to compare profits between different periods of time.
Net Profit
Net profit is the profit left over after all costs have been taken away from revenue. Net profit is equal to total revenue minus total costs. Expenses like advertising, insurance, rent and business rates are taken away before calculating net profit.
Net profit margin
- This is net profit as a percentage of revenue:
- Net Profit margin (%) = (Net Profit/Revenue) x 100
- It is a measure of how efficiently a company can turn sales into profit and so is an important indicator of the firms performance.
Higher net profit margin is better
- The higher the net profit margin, the better it is for a firm as they are able to turn a higher percentage of revenue into profit.
1Enterprise & Entrepreneurship
1.1The Dynamic Nature of Businesses
1.2Spotting a Business Opportunity
1.3Putting a Business Idea into Practice
1.3.1Business Aims
1.3.2Business Objectives
1.3.3Business Revenues & Costs
1.3.4Costs - Calculations
1.3.5Revenue - Calculations
1.3.6Business Profits & Break-Even Analysis
1.3.7Profits & Losses - Calculations
1.3.8Interest - Calculations
1.3.9Cash & Cash Flow
1.3.10Cash & Cash Flow 2
1.3.11Cash Flow - Calculations
1.3.12Sources of Business Finance
1.3.13End of Topic Test - Business in Practice
1.3.14Grade 9 - Business in Practice
1.3.15Exam-Style Questions - Business in Practice
1.4Making the Business Effective
2Building a Business
2.1Growing the Business
2.2Making Marketing Decisions
2.2.1Product
2.2.2Product Life Cycle
2.2.3Price
2.2.4Pricing Methods
2.2.5End of Topic Test - Product & Price
2.2.6Grade 9 - Product & Price
2.2.7Promotion & Advertising
2.2.8PR & Sales Promotions
2.2.9Sponsorship & Product Placement
2.2.10Promotional Mix
2.2.11End of Topic Test - Promotion
2.2.12Application Questions - Promotion
2.2.13Exam-Style Questions - Promotional Mix
2.2.14Place & Wholesalers
2.2.15Direct to Consumer
2.2.16E-commerce & M-commerce
2.3Making Operational Decisions
2.3.1Job Production
2.3.2Batch & Flow Production
2.3.3Working with Suppliers
2.3.4Effective Supply Chains
2.3.5Just In Time & Just In Case
2.3.6Managing Quality
2.3.7Total Quality Management
2.3.8The Sales Process
2.3.9End of Topic Test - Operational Decisions
2.3.10Grade 9 - Operational Decisions
2.3.11Exam-Style Questions - Managing Stock
2.4Making Financial Decisions
2.5Making Human Resource Decisions
Jump to other topics
1Enterprise & Entrepreneurship
1.1The Dynamic Nature of Businesses
1.2Spotting a Business Opportunity
1.3Putting a Business Idea into Practice
1.3.1Business Aims
1.3.2Business Objectives
1.3.3Business Revenues & Costs
1.3.4Costs - Calculations
1.3.5Revenue - Calculations
1.3.6Business Profits & Break-Even Analysis
1.3.7Profits & Losses - Calculations
1.3.8Interest - Calculations
1.3.9Cash & Cash Flow
1.3.10Cash & Cash Flow 2
1.3.11Cash Flow - Calculations
1.3.12Sources of Business Finance
1.3.13End of Topic Test - Business in Practice
1.3.14Grade 9 - Business in Practice
1.3.15Exam-Style Questions - Business in Practice
1.4Making the Business Effective
2Building a Business
2.1Growing the Business
2.2Making Marketing Decisions
2.2.1Product
2.2.2Product Life Cycle
2.2.3Price
2.2.4Pricing Methods
2.2.5End of Topic Test - Product & Price
2.2.6Grade 9 - Product & Price
2.2.7Promotion & Advertising
2.2.8PR & Sales Promotions
2.2.9Sponsorship & Product Placement
2.2.10Promotional Mix
2.2.11End of Topic Test - Promotion
2.2.12Application Questions - Promotion
2.2.13Exam-Style Questions - Promotional Mix
2.2.14Place & Wholesalers
2.2.15Direct to Consumer
2.2.16E-commerce & M-commerce
2.3Making Operational Decisions
2.3.1Job Production
2.3.2Batch & Flow Production
2.3.3Working with Suppliers
2.3.4Effective Supply Chains
2.3.5Just In Time & Just In Case
2.3.6Managing Quality
2.3.7Total Quality Management
2.3.8The Sales Process
2.3.9End of Topic Test - Operational Decisions
2.3.10Grade 9 - Operational Decisions
2.3.11Exam-Style Questions - Managing Stock
2.4Making Financial Decisions
2.5Making Human Resource Decisions
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