2.4

• What is the reward for entrepreneurs taking risks?

  Profit
• What are the two main types of profit?

  Gross profit and net profit
• What does gross profit account for?

  Expenses directly incurred in production
• How is gross profit calculated?

  Gross profit = Sales revenue - cost of sales
• What does net profit take into account?

  All business expenses
• How is net profit calculated?

  Net profit = Gross profit - (operating expenses + Interest)
• What is the selling price of the e-scooter in the example?

  £180 per unit
• What are the variable costs per unit for the e-scooter?

  £72
• How many scooters does the business sell per month?

  2,200 scooters
• What are the monthly fixed costs for the e-scooter business?

  £82,000
• What is the monthly interest payment on the mortgage?

  £240
• What is the cost of the new battery patent?

  £17,000
• What is the gross profit per unit for the e-scooter?

  £108
• What is the gross profit per month for the e-scooter business?

  £237,600
• What is the gross profit per year for the e-scooter business?

  £2,851,200
• What are the annual fixed costs for the e-scooter business?

  £984,000
• What is the annual interest payment for the e-scooter business?

  £2,880
• What is the net profit for the e-scooter business?

  £1,847,320
• What does a profit margin indicate?

  How much revenue exceeds costs
• Why are higher profit margins preferable?

  More revenue is converted to profit
• How is the gross profit margin calculated?

  Gross profit margin = (Gross profit / Sales revenue) × 100
• What is the gross profit margin for Head to Toe Wellbeing in 2022?

  84.82%
• What does the net profit margin show?

  Proportion of revenue turned into net profit
• How is the net profit margin calculated?

  Net profit margin = (Profit for the year / Sales revenue) × 100
• What is the net profit margin for Head to Toe Wellbeing in 2022?

  46.21%
• What does the Average Rate of Return (ARR) measure?

  Profit from a proposed capital project
• How is the ARR used in business decisions?

  To compare profitability of projects
• How is the ARR calculated?

  ARR = (average annual profit / initial outlay) × 100
• What is the average annual profit in the machinery example?

  £200,000
• What is the cost of the machinery in the example?

  £475,000
• What is the ARR for the machinery?

  42%
• What is sales volume?

  Number of products sold
• How is sales revenue calculated?

  Sales revenue = price × quantity sold
• What is market share?

  Proportion of total sales revenue
• How is market share calculated?

  Market share = (Sales revenue of business / Total sales revenue in market) × 100
• How is the percentage contribution of product X calculated?

  Percentage = (Sales revenue of product X / Total sales revenue) × 100
• What was the contribution to sales revenue for product X in 2019?

  £300,000
• What was the total sales revenue for all products in 2019?

  £1,000,000
• What percentage of total sales revenue did product X make in 2019?

  30.00%
• What is the formula for calculating percentage change?

  Percentage change = (new value - old value) / old value × 100