turnover and profit

Profit definition

a financial gain. the difference between the amount earned and the amount spent

total revenue definition

the amount of money an enterprise makes from sales of goods or services

total costs definition

the money spend on the production of a given level of output

profit equation

profit = total revenue - total costs

turnover definition

* turnover (also known as net sales) is the total revenue an enterprise receive in a given financial period
* turnover might come from a range of different products

revenue equation

revenue = price x quantity sold

cost of sales definition

* it costs money to make or produce any product. this is called the cost of sales or the cost of goods sold

Gross profit equation

gross profit = turnover/revenue - total cost of sales

Gross profit definition

* gross profit is the profit a business makes on selling its products
* it considers the direct costs of producing or supplying products, but does not take into account the expenses

Expenses definition

expenses include all of the indirect costs of an enterprise. these are the costs not associated with the products the enterprise sells (cost of sales)

examples of expenses

* administration
* the salaries of managers
* utility bills
* advertising

Net profit equation

net profit = gross profit - expenses

net profit definition

* net profit is the money made from selling a product after all costs have been deducted from gross profit
* net profit is also referred to as the “bottom line“, because it is the actual profit that can be returned to the owners of the enterprise or reinvested to help the enterprise grow

impact of low gross profit

* may increase sales revenue
* reduce cost of sales by:
* using cheaper raw materials
* buying in bulk
* changing supplier or negotiating a discount

impact of positive net profit

* the revenue is greater than the cost of sales
* good for the business overall

impact of negative net profit on a business

* likely due to gross profit being too low and/or expenses being too high
* increase gross profit
* reduce expenses by checking to see where savings can be made

impact of positive net profit on a business

* gross profit is also positive and expenditure is within budgeted levels