Profit and loss + Financial Performance

• What is the definition of profit?

  The difference between revenue and costs
• Why is it important to be precise when using the term profit?

  Stating "money made" can be confusing
• Who are the stakeholders interested in business accounts?

  • Directors
  • Workers
  • Managers
  • Shareholders/Investors
  • Customers
  • Suppliers
  • Banks
  • Government
  • Competitors
• What do directors want from business accounts?

  To measure past planning success
• Why do workers care about business accounts?

  To see if the business is successful
• What do managers want to know from business accounts?

  Whether they qualify for bonuses
• Why are shareholders interested in business accounts?

  To influence decisions on buying or selling shares
• What might customers want to know from business accounts?

  About the survival of the business
• Why do suppliers care about business accounts?

  To know if the business can pay its trade credit
• What do banks want to know from business accounts?

  If the business can pay its loans
• Why is the government interested in business accounts?

  To determine tax collection amounts
• What do competitors want from business accounts?

  To make comparisons for planning strategies
• What is a profit and loss account?

  A financial statement showing revenue and costs
• What is another name for profit and loss accounts?

  Income statements
• What is the formula for calculating gross profit?

  Total Revenue - Costs of Goods Sold
• How is gross profit margin calculated?

  Gross Profit × 100 / Sales
• What is net profit?

  The final profit after all costs are paid
• How is net profit calculated?

  Gross Profit - Expenses
• What is the formula for calculating net profit margin?

  Net Profit × 100 / Sales
• What are the reasons for changes in gross or net profit margin?

  • Changes in sales revenue
  • Changes in costs of goods sold
  • Changes in expenses
• What are the ways to increase profit?

  1. Decrease price

  • Increases competitiveness
  • May lower perceived quality

  1. Increase price

  • Increases revenue per sale
  • May lose customers

  1. Reduce costs

  • Increases profit per customer
  • May lower service quality

  1. Increase marketing

  • Attracts more customers
  • Increases costs
• What are finance costs?

  Costs related to borrowing money
• What are input costs?

  Costs for machinery and labor
• What are overheads?

  General business expenses not tied to production
• What is the relationship between sales and profit?

  Higher sales can lead to higher profit
• How do costs affect profit margins?

  Increased costs can decrease profit margins
• What is the impact of reducing prices on profit?

  It may increase competitiveness but lower profits
• What is the effect of increasing marketing on profit?

  It may attract customers but increase costs
• What is the significance of profit in business?

  It indicates financial health and sustainability
• Why is understanding profit margins important for businesses?

  It helps in assessing financial performance
• How can businesses use profit information for decision-making?

  To strategize pricing and cost management