making financial decisions

• gross profit is profit a business makes on its trading activity before any indirect costs have been deducted . Gross profit= sales revenue - cost of sales (cost of buying , producing, distributing products and services)
• Net profit is profit that a business is able to return to shareholders or reinvest back into the business Net profit = Gross profit - other operating expenses and interest
• improve profit by lowering costs or increasing revenue . Increasing revenue may also increase costs . Lowering costs can detract from value of the product or service reducing the businesses ability to make revenue
• The GPM indicates proportion of sales revenue turned into gross profit . Gross Profit Margin = Gross profit \ Sales revenue X 100
• The NPM indicates proportion of sales revenue turned into net profit Net profit margin = Net profit / sales revenue x 100
• Average rate of return = Average annual profit (Total profit / no of years) / Cost of investment x 100 . Calculation is used to compare different investment opportunities to identify which is most profitable .
• Businesses use quantitative data from variety of sources to make informed business decisions . Accuracy and reliability of this data important to help businesses make the right decision .
• use of data

  Business uses quantitative data to

  monitor the performance of the business

  compare performance with competitors

  Anticipate needs of customers or identify trends in market

  Make business decisions eg production volume and sales targets. Set business aims and objectives
• Graph and Charts

  Can be created using quantitative data:

  Demonstrate the relationship or correlation between two sets of data . Represent proportions , Show trends over time and make forecasts , measure the performance of a business . Identify unusual factors or events and their impact on the business
• types of data businesses use to make decisions

  marketing data - customer opinions , customer visits , customer satisfaction ratings .Financial data - sales figures / revenue , Costas , Financial accounts , Interest rates , Tax rates . Market data - demographics, Number of competitors , size of market , Growth of market
• limitations of financial data

  historical - when using financial data businesses will make decisions about the future based on past performance .

  Reason behind the numbers - the fact that sales revenue has fallen might not be as important as understanding the market factors that led to the fall in revenue . Statistics manipulated - facts can be expressed in different ways to give them a different emphasis . business performance is not solely judged on financial performance other qualitative factors