FINANCIAL ANALYSIS PART 1

Gross profit / net sales revenue x 100

• markup on cost

• gp margin

Gross profit/ cost of sales x 100

• markup on cost

• gp margin

HIGHER markup on cost =

• HIGHER selling price

• HIGHER cost of sales

To IMPROVE GP MARGIN

• increase selling price

• increase quantity of goods sold

To IMPROVE GP margin

• lower selling price so that can sell more

• lower cost of sales by sourcing for cheaper suppliers, of same quality

Profit/ Net sales revenue x 100

• profit markup

• profit margin

NOT a reason why P margin IMPROVE

• GP margin improve

• Higher other income

• Higher other expenses

NOT a way to LOWER operating expenses

• using electricity-saving equipment to cut down utilities expenses

• sourcing for cheaper rental locations

• buying inventory in bulk to benefit from trade discounts

ONE way to increase other income

• giving cash discounts to credit customers

• rent out part of the premises to earn rental income

GP margin IMPROVE = P margin IMPROVE always

• True

• False