the income statement

• gross profit

  Sales Revenue – Cost of Sales
• what is a gross loss

  If the cost of goods sold was bigger than the sales revenue gained then we have not made a profit. Instead we have made a gross loss
• Gross Profit Margins

  • Gross profit is an indicator of how efficient the business is at making and selling its products. 
  • However, the figure for gross profit on its own does not help us judge the level of efficiency: after all, a large business is likely to have a much higher gross profit figure than a small business. 
  • Consequently, a calculation is used to help us judge the efficiency of the business. This calculation, known as an accounting ratio, is called the gross profit margin (GPM). 
  • The better the performance the higher the gross profit margin percentage will be.
• Gross Profit Margins

  Gross Profit ÷ Sales Revenue * 100
• NET PROFIT

  Cost such as

  • Wages and salaries
  • Postage
  • Advertising
  • Insurance

  All of these expenses need to be deducted from the gross profit.The answer it gives us is called the NET PROFIT.
• net profit

  Gross Profit – Expenses = Net Profit
• Net Profit Margins

  • Net profit is an indicator of how profitable the business is overall: this is because all the business’s revenues and expenses in its calculation are included. 
  • Like the figure for gross profit, net profit on its own does not help judge the level of efficiency – after all, a large business is likely to have a much higher net profit figure than a small business. 
• net profit margin

  Net Profit ÷ Sales Revenue * 100
• 5 Easy Steps to P&L

  Sales Revenue / Turnover- Cost of Sales

  = Gross Profit

  - Expenses

  = Net Profit
• Reasons for Changes in the Gross and Net Profit Margins-SALES REVENUE

  Marketing – a good promotion campaign can increase sales. BUT if it is a bad campaign or the business has bad PR then sales could fall.

  Changes in tastes – if an item is in ‘favour’ sales will increase but if it goes out of fashion sales will decrease.
• Reasons for Changes in the Gross and Net Profit Margins-COST OF GOODS

  Demand – if there is an increase in demand for the raw materials then the price could be pushed up

  Climate factors – if conditions have meant that the raw materials have been wiped out this can cause the price of items to rise.
• Reasons for Changes in the Gross and Net Profit Margins-EXPENSES

  Wages – an increase in the minimum wage will impact upon the business costs

  Interest rates – if they go up then it may mean loan repayments are more expensive

  Inflation – general rise in the level of prices….utilities, telephones, petrol