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Gross profit
Revenue- cost of sales
Operating profit
Gross profit- expenses (cost of running business)
Net profit
Operating profit- financial costs (tax/inerest)
Profit margin
Profit/ revenue x 100
Difference between profit and cash
Cash refers to teh money that flows in and out the business within a specific time frame (day to day spending), profit is what’s left of your revenue once you’ve deducted your levels of cost
Measuring liquidity- current ratio
Current ratio: identifies wether a business can pay back short term debts- current assets/ current liabilities
Ideal ratio is 2.0 (£2 assets to £1 debt)
Measuring liquidity: acid test
More accurate measure of liquidity, takes out stock involves cash and debtors
Current assets-stock/ current liabilities
Ideal ratio is 1.4 (1.1-1.5)
Ways to improve liquidity
Encourage cash sales
destocking
Negotiate longer credit terms with suppliers
Delay payements
Use overdraft
Working capital
Day to day running Costs
Current assets- current liabilities
Internal reasons for failure
Lack of planning
Lack of funds
Poor leadership
Cash-flow problems
Marketing problems
External reasons for business failure
Change’s in legislation
Economic climate
Competition
Change’s in market prices
Note 
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