Gross Profit & Net Profit - Definitions

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Gross Profit

Gross profit is an important part in business calculations. Gross profit is equal to revenue minus cost of sales.

Gross profit

Gross profit = revenue – cost of sales
The higher a business’ gross profit is, the greater the difference between the price and the cost of sales. This is better for a business as they are making more profit excluding the business’ other costs.

Gross profit margin

This is gross profit as a percentage of revenue:
- Gross Profit Margin (%) = (Gross Profit/Revenue) x 100
It shows the average difference between the price that the company are able to charge customers and the costs directly associated with making and selling the product.
Gross profit margin is a potential indicator of the efficiency of a company using its raw materials and labour during the production process.

Higher gross profit margin is better

The higher the gross profit margin the better it is for the firm, as they are able to turn a higher portion of revenue into profit.
It can be used to compare the profitability of products and to compare profits between different periods of time.

Net profit is the profit left over after all costs have been taken away from revenue. Net profit is equal to total revenue minus total costs. Expenses like advertising, insurance, rent and business rates are taken away before calculating net profit.

Net profit margin

This is net profit as a percentage of revenue:
- Net Profit margin (%) = (Net Profit/Revenue) x 100
It is a measure of how efficiently a company can turn sales into profit and so is an important indicator of the firms performance.

Higher net profit margin is better

The higher the net profit margin, the better it is for a firm as they are able to turn a higher percentage of revenue into profit.

1Investigating Small Business

1.1Enterprise & Entrepreneurship

1.1.1The Dynamic Nature of Businesses

1.1.2Risk & Reward

1.1.3The Role of Business Enterprise

1.1.4The Role of Business Enterprise 2

1.1.5The Role of the Entrepreneur

1.1.6End of Topic Test - Dynamic Nature of Business

1.1.7Grade 9 - Dynamic Nature of Business

1.2Spotting a Business Opportunity

1.2.1Customer Needs

1.2.2Market Research

1.2.3Market Segmentation

1.2.4The Competitive Environment

1.2.5Primary & Secondary Market Research

1.2.6End of Topic Test - Business Opportunities

1.2.7Application Questions - Business Opportunities

1.2.8Exam-Style Questions - Market Segmentation

1.2.9Diagnostic Misconceptions - Competition

1.3Putting a Business Idea into Practice

1.4Making the Business Effective

1.4.1The Options for Start-Up & Small Businesses

1.4.2Limited Liability

1.4.3Franchising & Not-For-Profits

1.4.4Business Location

1.4.5The Marketing Mix

1.4.6Business Plans

1.4.7End of Topic Test - Effective Business

1.4.8Application Questions - Effective Business

1.4.9Exam-Style Questions - Business Plans

1.5Business Stakeholders

1.5.1Business Stakeholders

1.5.2Technology & Business

1.5.3Legislation & Business

1.5.4Legislation & Business 2

1.5.5The Economy & Business

1.5.6External Influences

1.5.7End of Topic Test - Business Stakeholders

1.5.8Grade 9 - Business Stakeholders

1.5.9Diagnostic Misconceptions - Recessions

2Building a Business

2.1Growing the Business

2.1.1Business Growth

2.1.2Finance

2.1.3Changes in Business Aims & Globalisation

2.1.4Ethics & Business

2.1.5The Environment & Business

2.1.6End of Topic Test - Growing a Business

2.1.7Application Questions - Growing a Business

2.1.8Exam-Style Questions - Business Growth

2.2Making Marketing Decisions

2.2.1Product

2.2.2Product Life Cycle

2.2.3Price

2.2.4Pricing Methods

2.2.5End of Topic Test - Product & Price

2.2.6Grade 9 - Product & Price

2.2.7Promotion & Advertising

2.2.8PR & Sales Promotions

2.2.9Sponsorship & Product Placement

2.2.10Promotional Mix

2.2.11End of Topic Test - Promotion

2.2.12Application Questions - Promotion

2.2.13Exam-Style Questions - Promotional Mix

2.2.14Place & Wholesalers

2.2.15Direct to Consumer

2.2.16E-commerce & M-commerce

2.2.17Diagnostic Misconceptions - Decreasing Price

2.2.18Diagnostic Misconceptions - Advertise vs Promote

2.2.19Diagnostic Misconceptions - Social Media

2.3Making Operational Decisions

2.3.1Job Production

2.3.2Batch & Flow Production

2.3.3Working with Suppliers

2.3.4Effective Supply Chains

2.3.5Just In Time & Just In Case

2.3.6Managing Quality

2.3.7Total Quality Management

2.3.8The Sales Process

2.3.9End of Topic Test - Operational Decisions

2.3.10Grade 9 - Operational Decisions

2.3.11Exam-Style Questions - Managing Stock

2.3.12Diagnostic Misconceptions - JIT vs JIC

2.4Making Financial Decisions

2.4.1Gross Profit & Net Profit - Definitions

2.4.2Gross Profit - Calculations

2.4.3Net Profit - Calculations

2.4.4Rate of Return

2.4.5Rate of Return - Calculations

2.4.6Research & Financial Data

2.4.7Marketing Data

2.4.8Percentage Change - Calculations

2.5Making Human Resource Decisions

2.5.1Organisational Structures

2.5.2Organisational Structures 2

2.5.3Recruitment

2.5.4Effective Recruitment

2.5.5Training a Workforce

2.5.6Motivating a Workforce

2.5.7End of Topic Tests - Human Resources

2.5.8Application Questions - Human Resources

2.5.9Exam-Style Questions - Human Resources

2.5.10Diagnostic Misconceptions - Owners vs Shareholders

2.5.11Diagnostic Misconceptions - Internal Recruitment

2.5.12Diagnostic Misconceptions - Employee Motivation

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