Business Calculations Flashcards
All 11 cards in this deck
What is the formula for gross profit?
Gross profit = sales revenue − cost of sales
What is the formula for net profit?
Net profit = gross profit − other operating expenses and interest
What is the formula for gross profit margin?
Gross profit margin = (gross profit ÷ sales revenue) × 100
What is the formula for net profit margin?
Net profit margin = (net profit ÷ sales revenue) × 100
What is the formula for average rate of return (ARR)?
ARR = (average annual profit ÷ cost of investment) × 100
What is gross profit?
The difference between the money received from selling goods and services and the cost of making or providing them, ignoring fixed costs or overheads.
What is cost of sales?
The costs incurred as a direct result of making a product or providing a service, such as raw materials.
True or false? Net profit margin is normally lower than gross profit margin.
True. Net profit margin takes more costs into account (other operating expenses and interest), not just cost of sales.
What is net profit?
The profit left after every cost has been taken off: cost of sales, other operating expenses and interest. The business can reinvest it or pay it out to its owners.
What is the average rate of return (ARR)?
The average profit an investment earns each year over its life, shown as a percentage of what the investment cost at the start.
When calculating ARR, how is the average annual profit found?
Average annual profit = total profit from the investment ÷ number of years the investment lasts