3.2.6
Profits
Profitability Analysis
Profitability Analysis
Businesses can analyse their profitability using gross profit, operating profit, and profit for the year objectives.


Gross profit
Gross profit
- Gross profit targets involve the amount of profit remaining once direct costs (cost of sales) have been paid by the business.
- Gross profit margin = (gross profit ÷ sales revenue) × 100
- For example, a supermarket may use gross profit margin targets to compare performance across years. A decrease in gross profit margins may lead the supermarket to focus on reducing the supermarket's cost of sales.


Profit for the year
Profit for the year
- A profit for the year target involves the amount of profit remaining once all costs and financing fees have been considered.
- Profit for the year margin = (profit for the year ÷ sales revenue) × 100
Improving Profit
Improving Profit
Business may decide to focus on improving profit and profitability as part of their aims and objectives.


Objectives
Objectives
- Profit and profitability can be increased by reducing expenditure on fixed and variable costs.
- Profit and profitability can be increased by increasing the selling price per item.


Challenges of improving profitability
Challenges of improving profitability
- Trying to reduce expenditure on fixed and variable costs can reduce quality which may reduce sales and therefore also reduce revenue.
- Increasing the selling price can deter customers from purchasing products which can decrease sales volume and market share.
1Exploring Business
1.1Features of Business Organisations
1.2Organisation of Businesses
1.3Business Environment
1.3.1External Influences
1.3.2Political & Legal Change
1.3.3Economic Environment
1.3.4Social & Technological Environment
1.3.5Lifestyle & Technological Environment
1.3.6Corporate Social Responsibility
1.3.7The Competitive Environment
1.3.8Innovation
1.3.9Risk & Uncertainty
1.3.10Porter's Five Forces
1.3.11SWOT Analysis
2Marketing Campaigns
2.1Marketing
3Business Finance
3.1Sources of Finance
3.2Financial Planning
3.3Financial Statements
4International Business
4.1Globalisation
4.2International Business
4.3International Economic Environment
4.4Factors Affecting International Business
5Principles of Management
5.1Management & Leadership
5.2Theories of Motivation
6Business Decision Making
6.1Business Principles & Practices
6.2Quality Management
6.3Human Resources
6.4Documents & Business Decisions
Jump to other topics
1Exploring Business
1.1Features of Business Organisations
1.2Organisation of Businesses
1.3Business Environment
1.3.1External Influences
1.3.2Political & Legal Change
1.3.3Economic Environment
1.3.4Social & Technological Environment
1.3.5Lifestyle & Technological Environment
1.3.6Corporate Social Responsibility
1.3.7The Competitive Environment
1.3.8Innovation
1.3.9Risk & Uncertainty
1.3.10Porter's Five Forces
1.3.11SWOT Analysis
2Marketing Campaigns
2.1Marketing
3Business Finance
3.1Sources of Finance
3.2Financial Planning
3.3Financial Statements
4International Business
4.1Globalisation
4.2International Business
4.3International Economic Environment
4.4Factors Affecting International Business
5Principles of Management
5.1Management & Leadership
5.2Theories of Motivation
6Business Decision Making
6.1Business Principles & Practices
6.2Quality Management
6.3Human Resources
6.4Documents & Business Decisions
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