Calculation-of-Gross-Profit Business Math.pptx

Entreprenuership

1. CALCULATION OF GROSS PROFIT

2. What is the difference between revenue and profit?

3. What do you think is more important for a business: revenue or profit? Why?

4. Profit Revenue The amount of money a business makes after paying all of its expenses It is the total revenue minus total expenses Gross income before subtracting any expenses. Total amount of money your business earns from all its sources Cost: Refers to the purchase price of the product including the total outlay required in producing it.

5. Example: 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?

6. What is Gross Profit? Gross profit is the difference between revenue and the cost of goods sold (COGS). Cost of goods sold (COGS) or cost of sales is the total cost of producing or making a product or service that a business sells.

7. What is Operating Profit? It is the amount of money that a company has left over after meeting its operating costs (gross profit) but before paying its taxes. Operating Expenses -Utilities (Electricity or water bill -Miscellaneous -Internet Connection

8. What is Net Profit? Reflects the amount of money that remains after accounting for all expenses and income in a period. Deductions: Cost of goods sold Operating cost Loan interest and taxes Bottom Line: Most important financial statement, reflecting the ability of business to generate income or profit

9. How to compute gross profit? The gross profit rate on a product is computed as: Net Sales xxxxxxx Less: Cost of Sales xxxxxxx Gross Profit xxxxxx Note: Net Sales = total revenue Cost of sales = cost of goods sold

10. Example: 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?

11. What is the importance of understanding gross profit in evaluating a business's performance?

12. Quiz: . Write True if the statement is correct and write False if you think the statement is not correct. Profit is the money received from the customer in exchange of products given to customer. Cost is the gross income before subtracting any expenses. Operating profit is the amount of money that a company has left over after meeting its operating costs. Cost of good sold is also known as net sales. The gross profit is computed by dividing net sales by cost of sales or cost of goods sold.

13. PROFITABILITY RATIOS

14. What is gross profit?

15. Why do you think companies analyze their profits?

16. What are Profitability Ratios? A group of financial statements that primarily determine the profitability of the business operation Profitability ratios show how much money a business makes compared to how much it spends.

17. PROFITABILITY RATIOS Gross Profit Margin Operating Profit Margin Net Profit Margin

18. Gross Profit Rate It measures a business profitability, calculated as gross profit as a percentage of revenue. Measures the average markup on every peso sale or for each product. Gross Profit - A business profit after deducting the cost of goods sold (COGS) from its revenue. Gross Profit Rate = Gross Profit Net Sales

19. Example: 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?

20. Example: Given: Gross Profit = 60,000 COGS – 120,000 Net Sales = 180,000 Gross Profit Margin = 60,000 180,000 = 0.33 or 33% In every peso that is gained after the cost of goods sold is deducted, 0.33 is the profit o the markup in every product that is sold.

21. Given: Gross Profit = 60,000 Net Sales = 180,000 Gross Profit Margin = 60,000 180,000 = 0.33 or 33% - This rate will be used to determine whether the amount of gross profit can cover the operating of the business . The gross profit rate will also help the entrepreneur set the selling price.

22. Operating Profit Rate 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, excluding deductions of interest and tax. Operating Profit – money after deducting operating expenses to net sales (total revenue). Operating Profit Rate = Operating Profit Net Sales

23. Example: Given: Gross Profit = 60,000 Net Sales= 180,000 Less: Op. Expenses = 10,000 Operating Profit = 50,000 Operating Profit Margin = 50,000 180,000 = 0.27 or 27% In every peso that is gained after the cost of sales and operating expenses is deducted, 0.27 is the profit o the markup in every product that is sold.

24. Net Profit Rate The income statement is the net profit margin and the third level in the revenue. Is an overall measure of profitability. Net Profit - the final profit a company makes after deducting all expenses, including nonoperating expenses such as interest and taxes. Net Profit Rate = Net Income Net Sales

25. Example: Given: Operating Profit = 50,000 Net Sales= 180,000 Less: Income Tax = 15,000 Net Profit Margin = 35,000 Net Profit Margin = 35,000 180,000 = 0.19 or 19% -In every peso that is gained after deducting all the expenses, 0.19 is the profit. -It appears that Rodrigo’s buy and sell have earned 19% of its total sales of P180,000 during the year.

26. INCOME STATEMENT 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.

27. RETURN OF INVESTMENT (ROI) Measures the amount of net income per peso invested to the business. ROI = Net Income Average Total Assets Assets – resources that a company owns and uses to generate revenue

28. What is the importance of calculating the three important financial ratios?

29. Quiz: Identify what is being asked from the following questions. 1. 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. 2. It is the income statement and the third level in the revenue. 3. It measures a business profitability, calculated as gross profit as a percentage of revenue. 4. This is important in a company management as a means of communicating past successes as well as future expectations. 5. Resources that a company owns and uses to generate revenue.

30. Components of Revenue Revenue can come from various sources, such as sales, services, and investments. Understanding your revenue streams helps in accurate gross profit calculation. Can you think of different revenue sources for a business?

31. Understanding Cost of Goods Sold (COGS) COGS includes direct costs like materials, labor, and manufacturing expenses. It does not include indirect costs like marketing or administrative expenses. Why is it crucial to accurately calculate COGS?

32. Calculating Gross Profit: An Example Example: If a company has $100,000 in revenue and $60,000 in COGS, what is the gross profit? Gross Profit = $100,000 - $60,000 = $40,000. How would you interpret this gross profit figure?

33. Importance of Gross Profit Margin Gross profit margin is calculated as: (Gross Profit / Revenue) x 100. It indicates the percentage of revenue that exceeds COGS. Why do you think businesses track their gross profit margin?

34. Analyzing Gross Profit Trends Tracking gross profit over time helps identify trends in profitability. A declining gross profit could indicate rising costs or falling sales. What factors might influence changes in gross profit?

35. Impact of Pricing Strategies on Gross Profit Pricing strategies directly affect revenue and, consequently, gross profit. Higher prices can increase gross profit if sales volume remains stable. How would you approach setting prices to maximize gross profit?

36. Role of Inventory Management Effective inventory management can reduce COGS and improve gross profit. Overstocking or stockouts can negatively impact profitability. What inventory management techniques do you think are effective?

37. Gross Profit vs. Net Profit Gross profit does not account for operating expenses, taxes, or interest. Net profit provides a clearer picture of overall profitability. Why is it important to differentiate between gross and net profit?

38. Common Mistakes in Gross Profit Calculation Failing to include all direct costs in COGS can inflate gross profit. Misclassifying expenses can lead to inaccurate financial reporting. What steps can you take to ensure accurate calculations?

39. Using Gross Profit for Business Decisions Gross profit informs pricing, budgeting, and financial forecasting. It helps assess product performance and market strategies. How can you use gross profit data to make informed business decisions?

40. Benchmarking Gross Profit Comparing gross profit margins with industry standards helps assess performance. It can highlight areas for improvement or competitive advantages. Why is benchmarking important for businesses?

41. Gross Profit and Financial Health A healthy gross profit indicates a company's ability to cover operating expenses. It is a key indicator for investors and stakeholders. How does gross profit influence investor confidence?

42. Tools for Calculating Gross Profit Financial software can automate gross profit calculations. Spreadsheets allow for customizable tracking and analysis. What tools do you think are most effective for managing financial data?

43. Real-World Applications of Gross Profit Businesses use gross profit to assess product lines and make strategic decisions. It plays a role in financial reporting and investor relations. Can you think of a real-world example where gross profit influenced a business decision?

44. Case Study: Gross Profit Analysis Analyze a case study of a company’s gross profit over several years. Identify trends, challenges, and strategies implemented. What insights can you draw from this analysis?

45. Conclusion: The Importance of Gross Profit Gross profit is a vital metric for understanding business performance. It guides decision-making and strategic planning. How will you apply what you've learned about gross profit in your future studies or careers?