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HOW DO I CALCULATE HOW MUCH MONEY A BUSINESS IS MAKING?
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LEARNING TARGET: |
I will analyse profit and loss statements and assess what a business can do to increase profits
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ASSESSMENTS: SUPPLY AND DEMAND CHALLENGE
CORNELL NOTES
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NOTESWhat is a 'Profit Margin' Profit margin is a profitability ratios calculated as net income divided by revenue, or net profits divided by sales. Net income or net profit may be determined by subtracting all of a company’s expenses, including operating costs, material costs (including raw materials) and tax costs, from its total revenue. Profit margins are expressed as a percentage and, in effect, measure how much out of every dollar of sales a company actually keeps in earnings. A 20% profit margin, then, means the company has a net income of $0.20 for each dollar of total revenue earned. GROSS VERSUS NET Gross profit calculates the total revenue from your goods or services minus the cost of those goods or services (sometimes referred to as COGS). So, the only expenses included are those directly related to the creation of those specific goods and services. Other expenses, such as your payroll, rent, utilities and other business expenses are not included in this calculation. Net profit differs in that it includes all business expenses, not just the direct cost of goods or services. These expenses include regular operational costs, such as utilities, payroll and other typical recurring expenses but also includes one-payments, such as taxes and contractor invoices. Any additional income not related to the selling of goods or services, such as investment income, must be accounted for as well. By including all businesses expenses in a net profit calculation a more detailed picture emerges of the business health. In fact, the net profit is often referred to as the ‘bottom line’ on a profit and loss statemen Profit Margin = Net Income / Net Sales (revenue) |
HOW MUCH MONEY AM I REALLY MAKING?
Example
Trisha’s Tackle Shop is an outdoor fishing store that selling lures and other fishing gear to the public. Last year Trisha had the best year in sales she has ever had since she opened the business 10 years ago. Last year Trisha’s net sales were $1,000,000 and her net income was $100,000.
Here is Trisha’s return on sales ratio...
Trisha’s Tackle Shop is an outdoor fishing store that selling lures and other fishing gear to the public. Last year Trisha had the best year in sales she has ever had since she opened the business 10 years ago. Last year Trisha’s net sales were $1,000,000 and her net income was $100,000.
Here is Trisha’s return on sales ratio...
Lets Assess:
Similar to the Lemonade Stand Game this Coffee shop will ask you to manage materials and pricing for a period of time. The name of the game is PROFIT
PROFIT = TOTAL REVENUE - COST OF GOODS Start playing and get familiar with the game. Once you have the hang of you will need to use the spreadsheet below to track your progress and profit margin. ![]()
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