Profitability Ratios (OCR 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

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

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

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

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

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

$\text{Net Profit Margin = }\frac{\mathrm{Net}\mathrm{Profit}}{\mathrm{Revenue}}\times 100$

$$\begin{gathered} =\frac{\pounds 65,864}{\pounds 124,653} \\ =0.5284 \end{gathered}$$ [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 net profit.

When you answer calculation questions, remember:

• Take care that your figures are easily recognisable

  • In some cases, the number 4 and the number 9 could be confused by the examiner

• Check the number of decimal places or significant figures required

  • If you only give  your answer to one decimal place rather than two, you will lose a mark, even if your answer is correct