Summary
Summary Profit
- Course
- Institution
Describes a Statement of Comprehensive Income, profitability ratios (e.g. gross profit margin), how to improve profitability, and the difference between cashflow and profit
[Show more]
Seller
Follow
emily1744
Reviews received
Content preview
Theme 2 Topic 12Profit
Statement of Comprehensive Income
Statement of Comprehensive Income – shows the income and expenditure (and therefore profit or loss) of a
business over a period of time
Key Terms
Key Word Definition
Revenue Income made from selling goods and
services before any costs are
deducted
Price x Quantity Sold
Cost of Sales Variable costs (e.g. raw materials)
directly linked to the sale of the
product or service
Gross Profit Shows how effective a business is at
adding value to the stock or raw
materials by getting customers to
pay more for the finished product Accountants use brackets () to show when a number
than the raw materials needs to be deducted
Revenue – Cost of Sales
Interpretation of Profit Calculations
Other Fixed costs (e.g. salaries) not directly
Operating linked to producing the product or If a business makes a low gross profit, they are
Expenses service not very effective at adding value to its raw
Operating The difference between gross profit materials or stock
Profit and operating expenses If a business makes a high gross profit but a
Gross Profit – Other Operating
very low operating profit, they are good at
Expenses
adding value but not very effective at
Interest Paid to the bank in return for
borrowing money controlling fixed costs
Profit for Year The difference between operating
(Net Profit) profit and interest
Operating Profit – Interest
Profitability Ratios
Profit – the money left when costs have been taken from revenue, it is an absolute figure e.g. £100 million
Profitability – measured as a percentage and measures the amount of profit in relation to some factor (e.g.
sales revenue)
Why is it important for a business to be making a profit?
To ensure they can cover all their costs
They can use it to expand/develop the business
To keep the business sustainable
Profitability can be measured for each of the three types of profit – gross, operating and net:
Gross Profit Margin – Shows how effectively a business turns its sales into gross profit
Gross Profit Margin = Gross Profit x 100
Sales Revenue
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller emily1744. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $5.87. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
64438 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now