Theme 2 Topic 12
Profit
Statement of Comprehensive Income
Statement of Comprehensive Income – shows the income and expenditure (and therefore profit or loss) of a
business over a period of time
Key Terms
Key Word Definition
Revenue Income made from selling goods and
services before any costs are
deducted
Price x Quantity Sold
Cost of Sales Variable costs (e.g. raw materials)
directly linked to the sale of the
product or service
Gross Profit Shows how effective a business is at
adding value to the stock or raw
materials by getting customers to
pay more for the finished product Accountants use brackets () to show when a number
than the raw materials needs to be deducted
Revenue – Cost of Sales
Interpretation of Profit Calculations
Other Fixed costs (e.g. salaries) not directly
Operating linked to producing the product or If a business makes a low gross profit, they are
Expenses service not very effective at adding value to its raw
Operating The difference between gross profit materials or stock
Profit and operating expenses If a business makes a high gross profit but a
Gross Profit – Other Operating
very low operating profit, they are good at
Expenses
adding value but not very effective at
Interest Paid to the bank in return for
borrowing money controlling fixed costs
Profit for Year The difference between operating
(Net Profit) profit and interest
Operating Profit – Interest
Profitability Ratios
Profit – the money left when costs have been taken from revenue, it is an absolute figure e.g. £100 million
Profitability – measured as a percentage and measures the amount of profit in relation to some factor (e.g.
sales revenue)
Why is it important for a business to be making a profit?
To ensure they can cover all their costs
They can use it to expand/develop the business
To keep the business sustainable
Profitability can be measured for each of the three types of profit – gross, operating and net:
Gross Profit Margin – Shows how effectively a business turns its sales into gross profit
Gross Profit Margin = Gross Profit x 100
Sales Revenue
Profit
Statement of Comprehensive Income
Statement of Comprehensive Income – shows the income and expenditure (and therefore profit or loss) of a
business over a period of time
Key Terms
Key Word Definition
Revenue Income made from selling goods and
services before any costs are
deducted
Price x Quantity Sold
Cost of Sales Variable costs (e.g. raw materials)
directly linked to the sale of the
product or service
Gross Profit Shows how effective a business is at
adding value to the stock or raw
materials by getting customers to
pay more for the finished product Accountants use brackets () to show when a number
than the raw materials needs to be deducted
Revenue – Cost of Sales
Interpretation of Profit Calculations
Other Fixed costs (e.g. salaries) not directly
Operating linked to producing the product or If a business makes a low gross profit, they are
Expenses service not very effective at adding value to its raw
Operating The difference between gross profit materials or stock
Profit and operating expenses If a business makes a high gross profit but a
Gross Profit – Other Operating
very low operating profit, they are good at
Expenses
adding value but not very effective at
Interest Paid to the bank in return for
borrowing money controlling fixed costs
Profit for Year The difference between operating
(Net Profit) profit and interest
Operating Profit – Interest
Profitability Ratios
Profit – the money left when costs have been taken from revenue, it is an absolute figure e.g. £100 million
Profitability – measured as a percentage and measures the amount of profit in relation to some factor (e.g.
sales revenue)
Why is it important for a business to be making a profit?
To ensure they can cover all their costs
They can use it to expand/develop the business
To keep the business sustainable
Profitability can be measured for each of the three types of profit – gross, operating and net:
Gross Profit Margin – Shows how effectively a business turns its sales into gross profit
Gross Profit Margin = Gross Profit x 100
Sales Revenue
