Business Calculations 2
Business: Edexcel IGCSE, topic 3.5.4
Operating profit margin
Operating profit is the profit after all operating costs are accounted for.
Operating profit
- Operating profit = Gross profit − Other operating expenses
Operating profit margin
- Operating profit margin (%) = (Operating profit ÷ Revenue) × 100
Purpose of operating profit margin
- This is a good measure of how well a company is being managed. If the operating profit margin is volatile, it indicates that the business is at risk.
Markup
Markup is a ratio based on the difference between the profit and cost of an item.
Markup
- Markup (%) = (Profit per item ÷ Cost per item) × 100
Purpose of markup
- Markup is often used by retailers to have a clear idea about what the gross profit margin of a sale will be.
Return on Capital Employed (ROCE)
Return on capital employed is the profit a company receives from capital used.
ROCE
- ROCE = (Operating profit ÷ Capital employed) × 100
Purpose of ROCE
- This is a useful measure for understanding the total resources a business can use. The higher percentage, the better.
Test yourself on Business Calculations 2
What is the formula for operating profit?
A company which produces coffee has a revenue of £600,000 and a gross profit of £200,000. Operating expenses equal £95,000. What is the operating profit?
Bobby sells lemonade every Saturday. His revenue is £40 a week. His gross profit is £10. His operating expenses are £2. What is his operating profit margin?
A second-hand bookshop sells first edition novels. The cost per novel is £23. The profit per novel is £7. What is the markup (to 2 decimal places)?
A spirit shop sells premier gins. The cost per bottle is £76. The profit margin is £48. What is the markup (to 2 decimal places)?