What is the name for the income a business receives from its sales, calculated as price multiplied by quantity sold?
Revenue
What is meant by gross profit?
The profit made after deducting the cost of sales from sales revenue
Which term describes what is left of a business's income after every cost, expense and interest payment has been deducted?
Net profit
What is meant by the gross profit margin?
Gross profit expressed as a percentage of sales revenue
Which term is a measure of profitability that shows how much of each pound of sales is left as profit once every cost and interest payment has been deducted?
Net profit margin
What is meant by the average rate of return?
The average annual profit of a project as a percentage of its cost
Which calculation works out a business's gross profit?
Sales revenue minus cost of sales
A business sells 2,000 units at £20 each. Its cost of sales is £24,000. What is its gross profit?
£16,000
A business has a gross profit of £60,000. Its operating expenses are £22,000 and it pays interest of £3,000. What is its net profit?
£35,000
A business has sales revenue of £250,000 and a gross profit of £100,000. What is its gross profit margin?
40 per cent
A business has a net profit of £45,000 and sales revenue of £300,000. What is its net profit margin?
15 per cent
A project costs £500,000 and is expected to make a total profit of £300,000 over five years. What is its average rate of return?
12 per cent
A business has a net profit margin of 4 per cent, while the average for its industry is 15 per cent. What does this suggest?
It is less efficient at turning sales into profit
A firm requires a return of at least 20 per cent on a new project. Project A has an average rate of return of 25 per cent and Project B has 12 per cent. Which project should the firm choose?
Project A, as it beats the required return
What is meant by the cost of sales?
The direct cost of the goods that a business has sold
Two rivals in the same industry have gross profit margins of 42 per cent and 26 per cent. What does the higher margin suggest about the first business?
It keeps more of each pound of sales after paying for its goods
A business's gross profit margin stays at 40 per cent, but its net profit margin falls from 9 per cent to 5 per cent. What is the most likely reason?
Its operating expenses and interest have risen
A business works out that a new machine will give an average rate of return of 18 per cent. Why should this figure be treated with caution?
It is only a forecast of the profit the project may make
A business has sales revenue of £400,000 and a net profit margin of 8 per cent. What is its net profit?
£32,000
We use cookies to enhance your experience. You can manage your preferences or learn more in our Cookie Policy.