# Profitability Ratios

Review Quiz

Before we begin today's class, we're going to review the topic of profit.

Answer the questions as accurately as possible

1 / 21
Slide 1: Slide
Business StudiesFurther Education (Key Stage 5)

This lesson contains 21 slides, with interactive quizzes and text slides.

Lesson duration is: 60 min

## Items in this lesson

Review Quiz

Before we begin today's class, we're going to review the topic of profit.

Answer the questions as accurately as possible

#### Slide 1 -Slide

Choose the correct term.

Sales revenue - cost of sales = ?
A
Operating profit
B
Net profit
C
Gross profit
D
Return on capital employed

#### Slide 2 -Quiz

Choose the correct term.

Gross profit - operating costs = ?
A
Operating profit
B
Net profit
C
Gross profit
D
Return on capital employed

#### Slide 3 -Quiz

Choose the correct term.

Operating profit - Interest and Tax = ?
A
Operating profit
B
Net profit
C
Gross profit
D
Return on capital employed

#### Slide 4 -Quiz

Here is the 2021 financial statement for a textile supplier, Threadz.

What was their 2021 operating profit?
A
£538,000
B
£312,000
C
£632,000
D
£218,000

#### Slide 5 -Quiz

Here is the 2020 financial statement for fashion retailer Q&B.

What was their net profit in 2020?
A
£1.9m
B
- £1.9m
C
- £1m
D
£0.1m

#### Slide 6 -Quiz

Profitability ratios

#### Slide 7 -Slide

Lesson objectives
- To contrast between the concepts of profit and profitability

- To calculate returns according to three types of profitability ratio used by businesses

- To interpret a given business' performance using profitability ratios

#### Slide 8 -Slide

Rank the companies
- Do you recognise any of the fashion retailers below?

- Discussing in pairs, rank them 1-5 in order of profits made.

£12.8bn (2018)

£12.3bn (2018)

£9.8bn (2018)

£8.9bn (2018)

£8.6bn (2018)

#### Slide 10 -Drag question

Profit vs. Profitability
- Profit is an absolute measure of returns earned by a
business, for example: £50,000 (i.e. net profit)

- Profitability is a measure of returns in relation to it's
size / costs, for example: 35%. (i.e. profit margin)

- Are the companies we looked at earlier ranked by
profit or profitability?

£12.8bn (2018)
£12.3bn (2018)
£9.8bn (2018)
£8.9bn (2018)
£8.6bn (2018)

#### Slide 11 -Slide

Profit vs. Profitability
- Profit is an absolute measure of returns earned by a
business, for example: £50,000 (i.e. net profit)

- Profitability is a measure of returns in relation to it's
size / costs, for example: 35%. (i.e. profit margin)

- Are the companies we looked at earlier ranked by
profit or profitability?       PROFIT

£12.8bn (2018)
£12.3bn (2018)
£9.8bn (2018)
£8.9bn (2018)
£8.6bn (2018)

#### Slide 12 -Slide

Profit or profitability?

Do the figures express
profit or profitability?

#### Slide 13 -Slide

What are the profitability ratios?
Type 1 -  Gross Profit Margin
Sales revenue - Cost of sales = Gross profit
x  100  =
Gross profit
Sales revenue
Gross profit margin (%)

#### Slide 14 -Slide

Check the financial statement for clothing retailer Sergio Giorgini for 2020.

What was their gross profit margin?
Sales revenue
£70,000
Gross profit
£50,000
Operating profit
£30,000
Net profit
£20,000
A
140%
B
71%
C
£120,000
D
£50,000

#### Slide 15 -Quiz

What are the profitability ratios?
Type 2 -  Operating Profit Margin
Gross profit - Operating costs = Operating profit
x 100 =
Operating profit
Sales revenue
Operating profit margin (%)

#### Slide 16 -Slide

Check the financial statement again.

What was their operating profit margin?
A
£30,000
B
£10,000
C
43%
D
41%

#### Slide 17 -Quiz

What are the profitability ratios?
Type 3 -  Net Profit Margin
Operating profit - Taxes & Interest = Net profit
x 100 =
Net profit for the year
Sales revenue
Net profit margin (%)
(Profit for the year margin)
(Profit for the year margin)

#### Slide 18 -Slide

Check the financial statement again.

What was their net profit for the year margin?
A
29%
B
350%
C
3.5%
D
28%

#### Slide 19 -Quiz

Now let's practice some more examples in your textbooks...