Income statements

What is an income statement?

↳ Financial statement that shows how income has changed over time

What is the use of a trading account?

↳ Records the firm’s gross profit or loss

What is revenue?

↳ The value of all goods sold in a period of time

How do you calcualte gross profit?

↳ Gross profit = Revenue - direct costs

How do you increase gross profit?

↳ Reducing costs to make the product

↳ Increase revenue

What is the use of a profit and loss account?

↳ Records all the indirect costs of running the business

↳ Indirect costs are expenses that aren't directly linked to making products or delivering services (eg- insurance)

How do you caculate depreciation?

↳ Simple way- cost ÷ years

What is operating profit?

↳ Money left after paying all indirect costs

What does significantly lower operating profit then gross profit show?

↳ Operating expenses are a weak area

What is net profit?

↳ The money you get to keep after all expenses and taxes are paid

What does retained profit show?

↳ If a business is profitable or not

How do you calculate gross profit margin?

↳ Gross profit ÷ sales revenue × 100

How can you increase gross profit margin?

↳ Increase prices

↳ Reduce direct cost of sales

How do you calculate net profit margin?

↳ Net profit ÷ sales revenue × 100

Is high gross profit margin/net profit margin good?

↳ The higher the percentage the better so good