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Business AS AQA

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  1. 1-1-the-nature-and-purpose-of-business as
    3 主题
  2. 1-2-forms-of-business as
    5 主题
  3. 1-3-the-external-environment as
    5 主题
  4. 2-1-management-and-leadership as
    3 主题
  5. 2-2-management-decision-making as
    4 主题
  6. 2-3-the-role-and-importance-of-stakeholders as
    3 主题
  7. 3-1-marketing-objectives as
    1 主题
  8. 3-2-understanding-markets-and-customers as
    5 主题
  9. 3-3-making-marketing-decisions as
    2 主题
  10. 3-4-the-marketing-mix as
    7 主题
  11. 4-1-operational-objectives as
    2 主题
  12. 4-2-operational-performance as
    1 主题
  13. 4-3-efficiency-and-productivity as
    3 主题
  14. 4-4-quality as
    1 主题
  15. 4-5-inventory-and-supply-chain-management as
    3 主题
  16. 5-1-financial-objectives as
    2 主题
  17. 5-2-financial-performance as
    6 主题
  18. 5-3-sources-of-finance as
    3 主题
  19. 5-4-cash-flow-and-profit as
    1 主题
  20. 6-1-human-resource-objectives as
    1 主题
  21. 6-2-human-resource-performance as
    1 主题
  22. 6-3-organisational-design as
    3 主题
  23. 6-4-human-resource-planning as
    4 主题
  24. 6-5-motivation as
    1 主题
  25. 6-6-improving-employer-employee-relations as
    2 主题
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Exam code:7131

Cash flow versus profit

  • “Profit“ and “cash“ are different financial terminologies

  • Profit is the difference between revenue generated and total business costs during a specific period of time

    • Profit can be an important indicator of a company’s financial health and long-term success, as it helps to assess the effectiveness of a company’s operations

  • Cash is measured by taking into account the full range of money flowing in and out of a business

    • This includes revenue from sales, operating expenses, investments, loans and any other cash-related transactions

  • While a company may make a profit, it may lack cash, as some customers may not actually have paid them yet

Comparing cash flow and profit

A diagram contrasting profit and cash flow calculation, with green boxes subtracting variable and fixed costs from sales revenue to calculate net profit and blue boxes subtracting cash outflows from cash inflows to calculate net cash flow.
Profit and cash flow are two distinct terms. A business that does not make a profit in the long run will cease to trade

  • Cash performs a variety of functions in a business

    • It is used to cover regular operating expenses such as workers’ pay, supplier invoices and overheads such as rent and utility bills

    • It can also be used to meet unexpected expenses, such as the replacement of broken equipment

  • A profitable business is likely to fail quickly if it does not have sufficient cash

    • Cash-poor businesses will struggle to pay suppliers, employees and operating expenses

    • This is called insolvency 

      • Lifestyle retailer Joules announced plans to liquidate in December 2022 as a result of cash-flow difficulties, despite making a profit of £2.6m during the previous year

Types of profit

  • Profit is the money left over after costs have been accounted for

  • There are several different types of profit

Types of profit

Flowchart depicting revenue calculation: Revenue minus direct costs equals gross profit; subtract indirect costs for operating profit; minus interest and tax for yearly profit.
Types of profit: gross profit, operating profit and profit for the year

Type of profit

What does it show?

How is it calculated?

Gross profit

(GP)

  • The difference between revenue and the costs directly related to production

Revenue – Direct costs

Operating profit

(OP)

  • The difference between the gross profit and the indirect expenses involved in operating the business

Gross profit – Indirect costs

Profit for the year

(NP)

  • The difference between the operating profit and any interest paid and received, as well as tax due

Operating profit – (Net interest + Tax)

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