Using the Income Statement (AQA GCSE Business): Revision Note

Head to Toe Wellbeing’s revenue in 2022 was $124,653. Its gross profit was $105,731

Calculate Head to Toe Wellbeing Ltd’s gross profit margin in 2022. [2 marks]

 Step 1: Substitute the values into the formula

$\mathrm{Gross}\mathrm{profit}=\frac{\mathrm{Gross}\mathrm{profit}}{\mathrm{Sales}\mathrm{revenue}}\times 100$

$$\begin{gathered} =\frac{\$105,731}{\$124,653} \\ =0.8482 \end{gathered}$$ [1]

Step 2: Multiply the outcome by 100 to find the percentage

$$\begin{gathered} =0.8482\times 100 \\ =84.82\% \end{gathered}$$      [1 mark]

84.82% of Head to Toe Wellbeing’s revenue was converted into gross profit during 2022

Head to Toe Wellbeing’s revenue in 2022 was $124,653. Its net profit was $65,864

Calculate Head to Toe Wellbeing Ltd’s net profit margin in 2022. [2 marks]

Step 1: Substitute the values into the formula

$\text{Net Profit Margin = }\frac{\mathrm{Profit}\mathrm{Before}\mathrm{Interest}\mathrm{and}\mathrm{Tax}}{\mathrm{Sales}\mathrm{Revenue}}\times 100$

$$\begin{gathered} =\frac{\$65,864}{\$124,653} \\ =0.5284 \end{gathered}$$ [1]

Step 2: Multiply the outcome by 100 to find the percentage

$$\begin{gathered} =0.5284\times 100 \\ =52.84\% \end{gathered}$$  [1]

In 2022, 52.84% of Head to Toe Wellbeing’s revenue was converted into profit before interest and tax

Chillie's Cafe

• Chillie's Cafe sells cold drinks during the summer season in central Berlin

• Its two best-selling products are bubble tea and smoothies

Diagram: Extracts from Chillie's Cafe's Income Statement

• Although Chillie's sells bubble tea drinks at a higher price, smoothies are more profitable for the business

  • Fewer bubble tea drinks than smoothies are sold, so revenue is lower

  • The cost of sales of bubble tea are higher than those for smoothies

You will not be given the formulas in the exam, so you must ensure that you revise them thoroughly. You are usually asked to state the formula before applying it to a calculation.