628712540-Q2-Module-8-Computation-of-Gross-Profit.pptx

entrep 12 module 7

1. GOOD MORNING!

2. CLASSROOM RULES

3. At the end of the lesson, the student should be able to: OBJECTIVES a. differentiate between gross profit, operating profit and net profit; and

4. FINANCIAL PLAN

5. Quarter2–Module 8 Computation of Gross Profit

6. TRUE OF FALSE Pre-test

7. 1. The gross profit rate of the entrepreneurial venture is computed by dividing the cost of goods sold by net sales. F ALSE 2. The gross profit rate provides information on the cost ratio of the business. TRUE

8. 3. In evaluating the profitability of the entrepreneurial venture, the evaluation must focus on the information reflected on the face of the balance sheet. FALSE 4. The operating profit margin rate indicates information on the percentage of operating expenses on the net sales. FALSE

9. 5. Mr. Q is a practicing Doctor of Medicine. During the month of March 2019, he received Professional Fees amounting to P 1,000,000 and total expenses of P250,000. The net income of Mr. Q is P 750,000. TRUE

10. 6. Profit is the money received from the customer in exchange of products given to customer. FALSE 7. The gross profit rate of the entrepreneurial venture is computed by dividing the cost of goods sold by net sales. FALSE

11. 8. The gross profit rate provides information on the cost ratio of the business. TRUE 9. One of the objectives in evaluating the gross profit rate of the business is to determine whether the amount of the gross profit is sufficient to cover the operating expenses FALSE

12. 10.The operating profit margin rate indicates information on the percentage of operating expenses to net sales. FALSE 11. The government is not interested in financial statements since it is not a party to any of the transactions of the business. FALSE

13. 12. The net profit margin rate presents the general perspective of the operating performance of the business. TRUE 13. The amount of income per peso investment can be determined by computing the net profit margin rate. FALSE

14. 14. In a normal situation, it is favorable for the business to have high inventory. TRUE 15. Preparation and presentation of the financial statements of the entity is the primary responsibility of an accountant FALSE

15. Rodrigo is engaged in a buy – and – sell business of perfumes. He bought 10 boxes of perfumes. Each box costs P12,000.00 and contains a dozen of perfume bottles. He is planning to sell one perfume bottle at P1,500 . What is his expected profit on the 10 boxes of perfumes

16. How much profit does Rodrigo earn? Is it good to engage in a business like Rodrigo’s? Yes or No? What do you think of Rodrigo’s business? Is it good for a beginner?

17. COMPUTING THE GROSS PROFIT

18. Profitability and Ratios are a group of financial statement ratios that primarily determine the profitability of the business operation. They provide information on the efficiency of resource utilization.

19. FINANCIAL STATEMENTS ARE: Statement of Financial Position or Balance Sheet Statement of Comprehensive Income or Income Statement Statement of Cash Flows

20. GROSS PROFIT represents the difference between net sales and cost of sales of the entrepreneurial venture during a given period. the amount of gross profit provides information to the entrepreneur about revenue earned from sales .

21. It is computed as follows: Net Sales P 180,000 Less: Cost of Sales 120,000 Gross Profit P 60,000

22. By using the formula, the gross of Profit of Rodrigo in the year 2022 is as follows: Net Sales P 180,000 Less: Cost of Sales 120,000 Gross Profit P 60,000

23. GROSS PROFIT RATE measures the percentage of gross profit to sales, indicating the profit that the business realizes from the sale of the product. the gross profit rate will also help the entrepreneur set the selling price.

24. The gross profit margin is computed as follows: Gross Profit Rate = Gross Profit Net Sales = P60,000 180,000 = 33 .33 % X 100%

25. The gross profit rate may signal to the entrepreneur that the amount of margin on sales is 33.33%, the cost ratio to sales will be 66.67% This information will help the entrepreneur in assessing whether the cost is too high or too low . Any product with a very high cost will not become competitive in the market.

26. PROFIT is determined by: the money you get from sales the cost of stock – if you're selling a product all the expenses you incurred

27. INCOME earned by the business are sales and gross profit Business Expenses- commissions, discounts, fixed expense

28. HOW TO IMPROVE SALES? Improve profit by looking at the money you earn from sales, and increase: the number of customers the volume of goods or services existing customers to buy The sales price

29. If the company wants to improve its gross profit margin, two things can be done: Raise prices Find ways to bring down production cost. For trading or merchandising companies, find a supplier which can sell finished goods to the company at low prices.

30. Both approaches are not easy to do. Raising prices is possible if your company is the only seller or provider of this product in the area. If there are many sellers, however, raising prices can make your products appear relatively more expensive and buyers may go to companies who offer their products at cheaper price.

31. OPERATING PROFIT MARGIN is the excess of gross profit from operating expenses. is the second level of revenue in the income statement. At this stage, not only is the cost of buying or making the product that has been deducted is included but also the operating expenses.

32. OPERATING PROFIT MARGIN The operating profit margin of the business measures the percentage of profit available after deducting the cost of sales and operating expenses of the business. A higher operating profit margin is favorable to the business.

33. OPERATING EXPENSES are expenses incurred during a particular period only, and are not expected to provide benefits to any future period. The operating expenses are also period costs..

34. The Operating Profit Margin is computed as follows: Gross Profit P 157,000 Less: Operating Expenses 90,000 Operating Profit Margin P 67,000

35. The Operating Profit Margin Rate is computed as follows: Operating Profit Operating Profit Margin Margin Rate Net Sales =

36. NET PROFIT MARGIN Operating Profit Margin P xxx Add: Interest Income xxx Total P xxx Less: Interest Expense Pxxx Income Tax xxx xxx Net Profit margin Pxxx

37. In case there are no financing charges like interest, expenses , and income tax , the amount of the operating profit margin is equal to the net income

38. The Net Profit Margin Rate is computed as follows: Net Profit Net Profit Margin Rate Net Sales =

39. Analyzing the Liquidity Status of the Business

40. FINANCIAL STATEMENTS are important in a company management as a means of communicating past successes as well as future expectations. The financial statement records all the operating results such as sales, expenses and profits or losses.

41. BASIC FINANCIAL STATEMENTS STATEMENT OF FINANCIAL POSITION provides information regarding the liquidity position and capital structure of a company as of a given date. It must be noted that the information found in this report are only true as of a given date.

42. STATEMENT OF FINANCIAL POSITION provides information regarding the liquidity position and capital structure of a company as of a given date. This statement includes the amounts of the company’s total assets, liabilities, and owner’s equity which in totality provides the condition of the company on a specific date.

43. Exhibit 2.2: JSC Foods Corporation Statement of Financial Position December 31, 2010- 2014 2014 2013 2012 2011 2010 Assets Current Assets Cash 1, 062, 527 996, 904 777, 415 766, 805 883, 416 Trade Receivables 2, 300, 500 1, 921, 799 1, 722, 513 1, 454, 426 1, 396, 639 Inventories 4, 849, 304 4, 499, 998 3, 797, 668 3, 293, 030 3, 351, 933 Other Current Assets 1, 050, 000 983, 746 984, 786 735, 608 998, 763 9, 262, 331 8, 402, 447 7, 282, 382 6, 249, 869 6, 630, 751 Noncurrent Assets Property, Plant, Equipment, Net 12, 200, 000 11, 300, 000 9, 050, 000 9, 350, 000 9, 500, 000 Other Noncurrent Assets 835, 689 925, 681 896, 842 876, 235 827, 490 Total Assets 22, 298, 020 20, 628, 128 17, 229, 224 16, 476, 104 16, 958, 241

44. Liabilities and Equity Current Liabilities Trade Payables 5, 050, 810 4, 746, 252 4, 137, 815 3, 298, 699 2, 874, 911 Income Taxes Payable 433, 051 283, 705 267, 801 149, 441 115, 330 Current Portion of Long-term Debt 2, 250, 000 2, 500, 000 1, 000, 000 2, 000, 000 2, 000, 000 Other Current Liabilities 85, 600 28, 700 40, 990 30, 688 37, 890 7, 819, 461 7, 558, 657 5, 446, 606 5, 478, 828 5, 028, 131 Noncurrent Liabilities Long-term Debt, Net of Current Portion 2, 000, 000 1, 250, 000 1, 000, 000 3, 000, 000 Total Liabilities 9, 819, 461 8, 808, 657 5, 446, 606 5, 478, 828 8, 028, 131 Stockholder’s Equity Capital Stock 8, 000, 000 8, 000, 000 8, 000, 000 8, 000, 000 8, 000, 000 Retained Earnings 4, 478, 559 3, 819, 472 3, 782, 618 1, 997, 276 930, 110

45. BASIC FINANCIAL STATEMENTS 2. INCOME STATEMENT provides information regarding the revenues or sales, expenses, and net income of a company over a given accounting period In analyzing earnings performance, a comparison with the previous periods and with other companies, especially those coming from the same industry, is a must

46. Exhibit 2.1: JSC Foods Corporation Statement of Comprehensive Income For the Years Ending December 31, 2010- 2014 2014 2013 2012 2011 2010 Net Sales 52, 501, 085 47, 345, 223 42, 174, 283 38, 340, 257 35, 336, 643 Cost of Sales 41, 954, 730 37, 988, 628 33, 980, 174 31, 439, 011 29, 329, 413 Gross Profit 10, 546, 355 9, 356, 595 8, 194, 109 6, 901, 246 6, 007, 229 Operating Expenses 6, 497, 659 6, 196, 804 5, 393, 621 4, 926, 723 4, 505, 422 Operating Income 4, 048, 696 3, 159, 791 2, 800, 488 1, 974, 523 1, 501, 807 Interest Expense 250, 000 250, 000 250, 000 450, 000 300, 000 Income before taxes 3, 798, 696 2, 909, 791 2, 550, 488 1, 524, 523 1, 201, 807 Taxes 1, 139, 609 872, 937 765, 146 457, 357 360, 542 Net Income 2, 659, 087 2, 036, 854 1, 785, 342 1, 067, 166 841, 265

47. BASIC FINANCIAL STATEMENTS 3. STATEMENT OF CASH FLOWS provides an explanation regarding the change in cash balance from one accounting period to another is a very important financial statement because it provides information regarding the quality of earnings of a company as shown in the cash flows from operating activities

48. LIQUIDITY RATIOS measure the ability of a company to pay maturing obligations from its current assets. the current assets of a company are compared with its current liabilities to determine its paying capacity

49. Commonly used liquidity ratios Current Ratio - measures a company’s ability to pay off its current liabilities (payable within one year ) with its total current assets such as cash, accounts receivable and inventories.

50. Commonly used liquidity ratios FORMULA: Current Ratio = Current assets Current Liabilities

51. Commonly used liquidity ratios b. Quick Ratio/Acid-test Ratio - measures its short-term obligations with its most liquid assets and therefore excludes inventories from its current assets.

52. Commonly used liquidity ratios FORMULA: Quick Ratio = Current assets-Inventories Current Liabilities

53. Happy Selling’s had the following accounts at year end: Cash-250,000, Inventories-100,000 Accounts Payable-70,000, Prepaid Expense-15,000. Compute for the company’s current ratio?quick ratio?

54. RETURN OF INVESTMENT measures the amount of net income per peso invested to the business.

55. Return of Investment FORMULA: ROI = Net Income Average Total Asset