Entrepreneur

• Gross Profit


  The difference between the amount of money earned from selling products/services and the cost of those products/services
• Gross Profit Rate


  Computed as Gross Profit / Net Sales, measures the percentage of gross profit to sales, indicating the profit that the business realizes from the sale of the product
• Computing Gross Profit


  1. Net Sales

  2. Less: Cost of Sales

  3. Gross Profit
• The gross profit rate may signal to the entrepreneur that the amount of margin on sales is X%

  
• The gross profit rate will help the entrepreneur set the selling price
• Operating Profit Margin

  The excess of gross profit over operating expenses
• Computing Operating Profit Margin


  1. Gross Profit

  2. Less: Operating Expenses

  3. Operating Profit Margin
• Operating Profit Margin Rate

  Computed as Operating Profit Margin / Net Sales, measures the percentage of profit available after deducting the cost of sales and operating expenses of the business

  
• Net Profit Margin Rate

  Computed as Net Profit / Net Sales, presents the general perspective of the operating performance of the business

  
• Operating expenses


  Period costs
• If there are no financing charges like interest, expenses, and income tax, the amount of the operating profit margin is equal to the net income
• The business realized an income of P67,000.00 during the year after deducting the cost and operating expenses from the sales made
• Calculating Operating Profit Margin Rate

  Operating Profit Margin / Net Sales

  
• Operating Profit Margin Rate

  67,000.00 / 734,000.00 = 0.0912 or 9.12%

  
• The operating profit margin of the business measures the percentage of profit available after deducting the cost of sales and operating expenses of the business
• Calculating Net Profit Margin Rate

  Net Profit / Net Sales

  
• Net Profit Margin Rate

  46,900.00 / 734,000.00 = 0.0639 or 6.39%
• XYZ Trading appears to have earned 6.39% of its total sales of P734,000 during the year
• The profit rate must be compared with those of other similar businesses within the industry
• Current Ratio


  Current Assets / Current Liabilities
• Quick Ratio


  (Current Assets - Inventories) / Current Liabilities
• The quick ratio measures its short-term obligations with its most liquid assets and therefore excludes inventories from its current assets
• Financial statements are important in a company management as a means of communicating past successes as well as future expectations
• Return on Investment (ROI)


  Measures the amount of net income per peso invested to the business
• The average total asset is calculated by dividing the sum of the total assets at the beginning and end of the period
• Yearly increase in revenue is assumed at 5%
• Yearly increase in cost is assumed at 5%
• Entrepreneurship should be practiced not as a science but as an art
• Creativity should always be applied by an entrepreneur through regularly evaluating the market and the environment and responding to the changes in them
• The importance in entrepreneurship is that the business activities are performed correctly
• Gross Profit


  Net Sales - Cost of Sales
• Income earned by the business are sales and gross profit
• Commissions, discounts, fixed expense are business expenses
• Ways to improve profit

  • Increase the number of customers
  • Increase the volume of goods or services existing customers buy
  • Increase the sales price
• Bookkeeping is the process of recording business transactions in a systematic and chronological manner
• Bookkeeper


  The person who is in-charge to record, maintain and update business records from all sorts of financial transactions using account title
• Book of Accounts


  Composed of the Journal and Ledger
• Journal


  Referred to as the book of original entry
• Ledger


  Referred to as the book of final entry
• General Journal


  The most basic journal which provides columns for date, account titles and explanations, folio or references and a separate column for debit and credit entries