A financial objective is a specific goal or target of relating to the financial performance, resources and structure of a business.
Typical financial objectives:
- Profit
- Cash flow
- Return on investment
- Capital structure
- Revenue
- Costs
3 profitability ratios:
- Gross profit margin
- Operating profit margin
- Profit for the year margin
If gross profit is positive, then it is still worth you producing a product or offering a service. It is making the business money to provide. If it is negative, then it is costing the business money to provide.
Gross profit is revenue from sales minus cost of sales
Operating profit is gross profit - expenses
And Profit for the year is operating profit - interest and taxation
Interest and taxation covers interest paid on debt or received plus tax payable of profit
gross profit margin = gross profit / sales revenue x 100
Statement of comprehensive income
- Public limited companies and private limited companies need to publish their accounts every year, according to UK law.
- As part of those accounts they need to show their profit and loss and this appears on their “statement of comprehensive income” (SOCI)
NOTE: Irrelevant to notes, practice.
367.8 / 597.5 * 100 = 61.6
15825000
13550000
13550000 / 15825000 x 100 = 85.6%
**Buy and Save**
gpm: 4089/64826 * 100 = 6.3%
opm: 2188/64826 * 100 = 3.4%
pfty: 120/64826 * 100 = 0.19%
**Trolleyworld**
gpm: 1206/18116 * 100 = 6.7%
opm: 949/18116 * 100 = 5.2%
pfty: 647/18116*100 = 3.6%
Trolleyworld wins!
Trolleyworld go from 3.6% to 4.2%, meaning a change of +0.8%
Methods to increase profitability
- Higher prices
- Reduce Costs
- Sell a greater volume of goods