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Managing Finance

Profit

  • 8 things to know
  • Paper 2 and Paper 3

Overview

Gross, operating and net profit and the margin for each, the statement of comprehensive income, the ways a business can improve profitability, and why profit and cash differ under the accruals concept.

What you need to know

Answer each one before you reveal it.

Your recallNot started
Numbers

How are gross profit and operating profit calculated?

Numbers

What is the statement of comprehensive income, and how is net profit found?

Numbers

What does the operating profit margin show, and how is it calculated?

Evaluation

How can a business improve its profitability?

Key term

At what point is profit recorded in the accounts?

Key term

What accounting concept is used to measure profit?

Numbers

State the three profit formulas.

Numbers

State the three profit margin formulas.

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    State the formula for calculating gross profit.

    Model answer

    Gross Profit = Revenue − Cost of Sales

  2. 2

    What two components are subtracted from each other to determine gross profit?

    Model answer

    Revenue and cost of sales

  3. 3

    Calculate the gross profit when revenue = £452,000, cost of sales = £313,000.

    Model answer

    Gross profit = 452000 − 313000 = £139,000.

  4. 4

    State the formula for calculating operating profit.

    Model answer

    Operating Profit = Gross Profit − Operating Expenses

  5. 5

    What is deducted from gross profit to arrive at operating profit?

    Model answer

    Operating expenses

  6. 6

    Calculate the operating profit when gross profit = £270,000, operating expenses = £173,000.

    Model answer

    Operating profit = 270000 − 173000 = £97,000.

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Net gain = − initial cost.
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AGross profit equals revenue minus cost of sales.
BOperating profit equals gross profit minus operating expenses.
CNet profit equals operating profit minus interest and taxation.

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