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profit (statement of comprehensive income (key terms): (revenue: is the…
profit
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margins
higher margins are better and an increase in margins over time shows an improvement, the typical margin will vary according to the industry in which a business operates in
e.g. in the food industry the net profit margins are quite low, this is because the market is so competitive and prices are therefore kept low. firms in this market make large profits because large numbers of units are sold
in a market selling luxury items e.g. exclusive brands of perfume, the net profit margins are higher. however, in these markets the volume of sales is of course lower
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statement of comprehensive income: shows the income and expenditure and therefore the profit or loss of a firm over a period of time (usually annually)
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profitability ratios: to find out, if it is helpful to measure the profit in relation to the sales revenue. this gives a relative measure of profit known as profitability
profitability: is measured as a percentage and measures the amount of profit in relation to some factor (e.g. sales revenue)
gross profit margin: show how effectively a business turns its sales into gross profit calculated by: gross profit / sales revenue x100
operating profit margins: show how effectively a business turns its sales into operating profit calculated by: operating profit / sales revenue x100
profit for the year margin (net profit margin): calculates what percentage of total revenue is actually profit calculated by: net profit / sales revenue x100