Calculating different profit levels: gross, operating, net

Cards (38)

  • What components are included in COGS?
    • Raw materials
    • Labor costs
    • Manufacturing expenses
  • What does net profit represent for a company?
    The final amount of profit kept
  • How does operating profit differ from gross profit?
    It includes all operating costs related to business
  • What does COGS stand for in the context of gross profit?
    Cost of Goods Sold
  • How do you calculate net profit?
    NetProfit=Net Profit =OperatingProfitInterestExpensesTaxes Operating Profit - Interest Expenses - Taxes
  • What are COGS?
    Direct costs associated with producing goods/services
  • What does operating profit indicate about a business?
    Profitability from main operations after expenses
  • How much does the bakery pay in interest expenses?
    £10
  • What are considered operating expenses?
    Costs to keep the business running
  • How does the gross profit change if the sales revenue increases while COGS remains the same?
    Gross profit increases
  • What is gross profit?
    Profit after subtracting COGS from sales revenue
  • What is the process to calculate gross profit?
    • Identify sales revenue
    • Identify cost of goods sold (COGS)
    • Use the formula: Gross Profit = Sales Revenue - COGS
  • What happens to net profit if taxes are reduced?
    Net profit increases if taxes are reduced
  • If a bakery has an operating profit of £50, pays £10 in interest, and £5 in taxes, what is its net profit?
    £35
  • How much does the bakery pay in taxes?
    £5
  • What is another name for operating profit?
    Earnings before interest and taxes (EBIT)
  • How does the net profit change if interest expenses increase while operating profit remains the same?
    Net profit decreases as interest expenses increase
  • If a bakery sells £100 of bread and spends £30 on ingredients, what is their gross profit?
    £70
  • How do interest expenses affect a company's net profit?
    Higher interest expenses lower net profit
  • If a company has an operating profit of £100, pays £20 in interest expenses, and £30 in taxes, what is the net profit?
    £50
  • What is the relationship between operating profit and net profit?
    Net profit is derived from operating profit
  • If a bakery sells £100 of bread and spends £30 on COGS, what is its gross profit?
    £70
  • Why is it important for a business to calculate net profit?
    To assess financial performance and profitability
  • What is included in operating expenses?
    Costs related to running the business
  • Why is operating profit considered a clearer view of profitability than gross profit?
    It accounts for all operating costs of the business
  • What is deducted from gross profit to calculate operating profit?
    Operating expenses
  • How is gross profit calculated?
    Revenue minus cost of goods sold
  • What are the components of operating expenses?
    • Administrative costs (salaries, rent, utilities)
    • Marketing and sales (advertising, promotions)
    • Research and development
  • If a bakery has a gross profit of £70 and spends £20 on operating expenses, what is its operating profit?
    £50
  • What do you subtract from gross profit to find operating profit?
    Operating expenses
  • What is the formula to calculate operating profit?
    OperatingProfit=Operating Profit =GrossProfitOperatingExpenses Gross Profit - Operating Expenses
  • What is net profit?
    The final profit after all costs
  • How is gross profit calculated?
    Gross profit = sales revenue - COGS
  • What is net profit?
    Profit after deducting all costs
  • What costs are deducted to calculate net profit?
    • Operating expenses
    • Interest expenses
    • Taxes
  • How do you calculate operating profit with a gross profit of £70 and operating expenses of £20?
    • Operating Profit = Gross Profit - Operating Expenses
    • £70 - £20 = £50
  • What does sales revenue represent?
    Total money earned from selling goods/services
  • What costs are deducted to calculate net profit?
    Operating expenses, interest expenses, and taxes