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A-level Business
Calculating different profit levels: gross, operating, net
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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?
N
e
t
P
r
o
f
i
t
=
Net Profit =
N
e
tP
ro
f
i
t
=
O
p
e
r
a
t
i
n
g
P
r
o
f
i
t
−
I
n
t
e
r
e
s
t
E
x
p
e
n
s
e
s
−
T
a
x
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s
Operating Profit - Interest Expenses - Taxes
Op
er
a
t
in
g
P
ro
f
i
t
−
I
n
t
eres
tE
x
p
e
n
ses
−
T
a
x
es
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?
O
p
e
r
a
t
i
n
g
P
r
o
f
i
t
=
Operating Profit =
Op
er
a
t
in
g
P
ro
f
i
t
=
G
r
o
s
s
P
r
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f
i
t
−
O
p
e
r
a
t
i
n
g
E
x
p
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n
s
e
s
Gross Profit - Operating Expenses
G
ross
P
ro
f
i
t
−
Op
er
a
t
in
g
E
x
p
e
n
ses
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