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Measuring and improving profit

Measuring and improving profit. The skills we are aiming to build. Knowledge of how to calculate Profit and Profit Margins Knowledge of how Profit and Profit Margins can be increased The ability to Apply these concepts to different business examples

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Measuring and improving profit

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  1. Measuring and improving profit

  2. The skills we are aiming to build • Knowledge of how to calculate Profit and Profit Margins • Knowledge of how Profit and Profit Margins can be increased • The ability to Apply these concepts to different business examples • The ability to Analyse how different attempts to improve profit might affect a business • The ability to Evaluate the most suitable methods of improving profit for different businesses

  3. Measuring profit performance • Can be achieved in two main ways: • By measuring profit as a monetary total e.g. £1,000 • By calculating a profit margin

  4. Using a monetary value • Gross Profit = Sales Turnover – Cost of Sales • Operating Profit = Gross Profit – Expenses

  5. Calculating a profit margin • Gross Profit Margin = Gross Profit Turnover X 100 • Operating Profit Margin = Operating Profit Turnover X 100 • Allows comparison between different sized businesses • To be meaningful they need to be compared: to other businesses and previous years

  6. Some examples

  7. How to improve profit and profit margins • Increase Turnover • Decrease Costs • A combination of both! • How could these aims be achieved? • What negative trade-offs are there with these policies? • What will the success of these policies depend on?

  8. Profit Vs. Profit Margin • Although improvement in both of these will come from similar tactics, it is important that businesses distinguish between the two. • Why?

  9. Good idea? Bad idea? Why? In an attempt to improve profits... • Lidl increase its prices by 10% • Marks and Spencer reduce the number of sales assistants by 20% • Apple decide to produce a smaller range of products • The Wherry Hotel uses a cheaper supplier for its restaurant food • BP increase the price of a litre of petrol by 5p

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