Profability Ratios

Profability Ratios

1. loss - when total costs are higher than your revenue

2. profit - the money left over once all expenses have been paid for

3. gross profit = revenue - the cost of sales

4. net profit = gross profit - (expenses) cost of running the business

5. gross profit margin = net profit / revenue x 100

6. revenue = price per unit x quantity sold

7. net profit margin = net profit / revenue x 100

8. A profit margin compares a businesses profits to its sales revenue and expresses the outcome as a percentage

   • This calculation of this ratio can be provided analysis of a business's financial performance and relate the profit of the firm to its size.
     • these profit margins allow a comparison of the performance of firms which vary in size
       • a high percentage figure for all ratios is desirable

9. Profit as absolute and relative terms

   • In absolute: the £ value of profit
   • In relative: the profit earned as a proportion of sales achieved or investment made

10. loan

    • a business borrows a sum of money from a bank or other lender

11. overdraft

    • a bank allows a bsuiness to spend more money than there is in its current account

12. crowdfunding

    • money is raised by a business by inviting sponsors to contribute money, provide a loan or provide equity in a business

13. share issue

    • money is raised by selling a share of the business

14. taking on a new partner

    • money is raised by inviting someone to become a new partner in a business

15. trade credit

    • goods are obtained from another without immediate payment being made

16. retained profit

    • money is made by the business but not paid to the owners

17. sale of asset

    • money is received following the sale of capital items owned by the business

18. owners capital

    • the owner or owners use their own savings to provide capital for the business