Making financial decisions

• GROSS PROFIT = Sales revenue – cost of sales
• GROSS PROFIT = Sales revenue – cost of sales
• GROSS PROFIT MARGIN = Gross profit/Sales revenue x 100
• NET PROFIT MARGIN = Net profit/Sales revenue x 100
• AVERAGE RATE OF RETURN = Average annual profit/Cost of investment x 100To calculate the ‘average annual profit’, add up the profits across each year and divide by the number of years
• MARKET DATA provides a business with information on the wider market (outside of the business) and includes population information, income levels, employment and unemployment information
• MARKETING DATA is used to measure the effectiveness of the marketing strategies. This could involve sales data for which a business can determine how effective a marketing campaign was, or perhaps the impact of promotional methods on sales
• LIMITATIONS OF FINANCIAL INFORMATION:● Accuracy – how accurate is the data being used?● Representative – is this year’s financial data useful to compare with previous years?● Out of date – is the data still in data and still of use?● Qualitative data may be needed – qualitative can provide reasons behind certain pieces of quantitative data