La Salette of Jones,Inc.
Jones, Isabela
3313 PHILIPPINES
PAASCU Level 2 Accredited
E-mail Address: lasaletteofjones2020@gmail.com
Learning Management System: https://lsjonesclms.online
SUBJECT: ENTREPRENEURSHIP QUARTER: 2
REFERENCE: MODULE 7 WEEK NO.: 18
I. TOPIC/S: COMPUTATION OF GROSS PROFIT
II. OBJECTIVES: The learner should be able to:
1. compute for profits;
2. define profitability, liquidity & solvency; and
3. identify commonly used profitability ratios.
III. LESSON PROPER
A. Introduction
As we, all know that profit is a financial gain from a transaction or a period of investment or business
activity, usually calculated as income more than costs or as the final value of an asset above its initial value.
It is total revenue minus total expenses; profit is the amount of money a business "makes" during a
given accounting period. The more profit you make, the better, as profit can be re-invested into the business
or retained by the business owners. Being able to accurately determine your business's profit is an essential
part of being able to judge its financial health. It can also help you decide how to price your goods and
services, how to pay your employees, and more. To make your business gain more profit, begin by adding
up all of the money your business has made in a set period (either, quarterly, yearly, monthly, etc. Other
sources, like products sold, services rendered, membership payments, or, in the case of government
agencies, taxes, fees, the sales of resource rights, and so on.
Note that you will need to subtract any amount of cash refunded to customers for returns or disputes
to find an accurate figure for your total income. It is easier to understand the process of calculating a
business's profit by following along with an example.
Let us say that we own small publishing business. In the last month, we sold P 20,000.00 worth of
books to retailers in the area. However, we also sold the rights to one of our intellectual properties for P
7,000.00 and received P 3,000.00 from book retailers for official promotional materials. If these represent
all of our revenue sources, we can say that our total income is P 20,000.00 + P7,000.00 + P 3,000.00 = P
30,000.00.
B. Interaction and Integration
Let us review of what is revenue of the business. This is an important tool and materials needed in
the operation of the business. It is said that revenue is the result when sales exceed the cost to produce or
manufacture goods/merchandise as well as costs incurred in selling.
Forecast is advance information that could help us prepare and ready for any incoming event.
Forecasting is the tool used in planning that aims to support management or a business owner in its desire
to adjust and cope up with uncertainties of the future. If anyone of us can predict that, we can be rich so it
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means all of us will be rich. This fantasy is played out every day in boardrooms across the globe with the
practice of business forecasting.
It is important to have a good organization in the business to easily grow and expand in the future.
Illustration problem:
Rodrigo is engaged in a buy-and sell business of perfumes. He bought 10 boxes of perfumes. Each
box costs P 12,000.00 and contains a dozen of perfume bottles. He is planning to sell one perfume bottle at
P 1,500.00. What is his expected profit on the 10 boxes of perfumes?
The ultimate goal of any business whether a retail or wholesale is to earn a profit. Getting the
difference between the amount of money earned from the selling 10 boxes containing a dozen of perfume
bottles and the cost of those 10 boxes gives the profit.
In the example that I gave, answer the following questions:
1. How much Rodrigo does earned profit.
2. Is it good to engage in a business? Yes or No?
3. What do you think of Rodrigo’s business? Is it good for a beginner?
Answer:
Given of 10 boxes of perfumes contain a dozen of bottles 120 bottles bought by Rodrigo
Cost of each box = P 12,000.00
Selling Price of each perfume =P 1,500.00
To solve the problem, we compute first the cost of 10 X 12=120 bottles. Since each box costs P
12,000.00 & Rodrigo bought 10 boxes, we get Cost = P 12,000.00 (10) = P120,000.00.
Rodrigo can expect that the net sales he will get upon selling 10 boxes consisting of 120 bottles
Net Sales = 1,500 (120) = P180, 000.00
Thus, has
Profit = Net Sales – Costs
= P 180,000.00 – 120,000.00
= P 60,000.00
Compute the Gross Profit
The profitability ratios are a group of financial statement that primarily determine the profitability
of the business operation.
The gross profit rate on a product is computed as:
Net Sales xxxxxxx
Less: Cost of sales xxxxxxx
Gross profit xxxxxxx
By using the formula, the gross of XYZ Trading in the year 2017.
Net Sales P 734, 000.00
Less: Cost of Sales 577, 000.00
Gross Profit P 157, 000.00
Profit is the gross income. The amount of gross profit provides information to the entrepreneur about
revenue earned from sales. The term cost refers to the purchase price of the product including of the product
including the total outlay required in producing it.
The gross profit margin is computed as follows:
Gross Profit
Gross Profit Rate = Net Sales
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The gross profit rate measures the percentage of gross profit to sales, indicating the profit that the
business realizes from the sale of the product.
The gross profit rate of XYZ Trading for the year computed as follows:
46,900.00
Gross Profit Rate = 734,000.00
Gross Profit Rate = 21.39%
The gross profit rate may signal to the entrepreneur that the amount of margin on sales is 21.39%.
This rate will be used to determine whether the amount of gross profit can cover the operating of the
business. Since the gross profit rate of XYZ Trading is 21.39%, the cost ratio to sales will be 78.61%. This
information will help the entrepreneur in assessing whether the cost is too high or too low. Any product
with a very high cost will not become competitive in the market.
The gross profit rate will also help the entrepreneur set the selling price.
Operating Profit Margin Rate
The operating the profit margin is the excess of gross profit from operating expenses.
Gross profit xxxxx
Less: Operating Expenses xxxxx
Operating profit margin xxxxx
The operating profit margin is the second level of revenue in the income statement. At this stage,
not only the cost of buying or making the product that has been deducted is included but also the operating
expenses. These are expenses incurred during a particular period only, and are not expected to provide
benefits to any future period. The operating expenses are also period costs.
In case there are no financing charges like interest, expenses, and income tax, the amount of the
operating profit margin is equal to the net income.
Gross profit P 157,000.00
Less: Operating expenses 90,000.00
Operating profit margin P 67,000.00
The information that the business realized an income of P 67,000.00 during the year after deducting
the cost and operating expenses from the sales made.
Operating Profit Margin
Operating Profit Margin Rate =
Net Sales
By applying
67,000.00
Operating Profit Margin Rate =
734,000.00
Operating Profit Margin Rate = 9.13%
The operating profit margin of the business measures the percentage of profit available after
deducting the cost of sales & operating expenses of the business. A higher operating profit margin is
favorable to the business.
Net Profit Margin Rate
Operating profit margin xxxxxxx
Add: Interest Income xxxxxxx
Total
Less: Interest Expense xxxxxx
Income Tax xxxxxx xxxxxxx
Net Profit margin xxxxxxx
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The Income statement.is the net profit margin & the third level in the revenue. The business is only
given consideration like interest expense and income tax.
Operating profit margin P 67,000.00
Less: Income tax 20,000.00
Net profit margin P 46,900.00
The income statement of XYZ Trading does not reflect any data on interest expense. Only income
tax has been deducted from the operating profit margin.
Net Profit
Net Profit Margin Rate =
Net Sales
By applying the formula, the profit margin of XYZ.
46,900.00
Net Profit Margin Rate =
734,000.00
Net Profit Margin Rate = 6.39%
XYZ Trading appears to have earned 6.39% of its total sales of P 734,000.0 during the year. This
profits rate must be compared with those of other similar businesses within the industry.
Analyse the Liquidity Status of the Business
Liquidity Ratios
Current ratio = Current assets / Current liabilities
Quick ratio = (Current assets – Inventories) / Current liabilities
= (Cash and equivalents + Marketable securities + Accounts receivable) / Current
liabilities.
The quick ratio measures its short-term obligations with its most liquid assets and therefore
excludes inventories from its current assets.
Financial statements are important in a company management as a means of communicating past
successes as well as future expectations. The financial statement records all the operating results such as
sales, expenses and profits or losses.
Return of Investment (ROI)
The Return of investment (ROI) measures the amount of net income per peso invested to the
business.
The formula to compute ROI is as follows:
Net Income
Return of Investment =
Average Total Assets
The average total assets are by dividing the sum of the total assets at the beginning and end of the
period.
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Table 1
Projected Five-Year Balance Sheet
Fit Mo'to Ready to Wear Online Selling Business
Year 1 Year 2 Year 3 Year 4 Year 5
ASSET
Cash 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Total Assets 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Liability - - - - -
Owners’ Equity 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Total
Liabilities and
Owner's
Equity 337,398.56 686,417.05 1,052,886.47 1,437,679.36 1,841,711.89
Table 2
Projected Five-Year Income Statement
Fit Mo'to Ready to Wear Online Selling Business
Year 1 Year 2 Year 3 Year 4 Year 5
Revenue 1,545,673.95 1,622,957.64 1,704,105.53 1,789,310.80 1,878,776.34
Cost 1,213,275.38 1,273,939.15 1,337,636.11 1,404,517.91 1,474,743.81
Gross Profit
Before tax 332,398.56 349,018.49 366,469.42 384,792.89 404,032.53
Yearly increase in revenue is assumed at 5%
Yearly increase in cost is assumed at 5%
As a future entrepreneur, one should always remember that nothing is permanent in the field of
entrepreneurship. What is applicable to one entrepreneur may not be applicable to another. Certain things
may happen to one entrepreneur but may not happen to another.
Entrepreneurship should be practiced not as a science but as an art. Creativity should always be applied to
entrepreneur by regularly evaluating the market and the environment and responding to the changes in
them.
The owner of an ordinary small business has the freedom to manage and operate. Ideally, he/she
prefers business activities, which are done easily. However, the entrepreneur has to perform the
entrepreneurial activities correctly regardless of whether they are undertaken easily or not. The important
in entrepreneurship is that the business activities are performed correctly.
Summary:
The profitability and ratios are a group financial statement ratios that primarily determine the
profitability of the business operation. They provide information on the efficiency of resource utilization.
The gross profit represents the difference between net sales and cost of sales of the entrepreneurial venture
during a given period. It is computed as follows:
Net Sales xxxxxx
Less: Cost of Sales xxxxxx
Gross Profit xxxxxx
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By using the formula, the gross profit of XYZ Co., in the year 2017 is computed as follows:
Net Sales P 734,000.00
Less: Cost of Sales 577,000.00
Gross profit P 157,000.00
Profit is determined by:
the money you get from sales
the cost of stock – if you're selling a product
all the expenses you incurred
Income earned by the business are sales & gross profit. Commissions, discounts , fixed expense are
business expenses.
How to Increase your Sales
Improve profit by looking at the money you earn from sales, and increase:
o The number of customers
o The volume of goods or services existing customers to buy
o The sales price
References:
Aduana, Nick L. Entrepreneurship in Philippine Setting for Senior High School, 2017, C&E publishing,
Inc.p.46-51
Aduana, Nick L. "Chapter 5/Lesson 3 The Marketing Mix." In Entrepreneurship in Philippine Setting for
Senior High School, 184-199. Quezon City, Philippines: C&E Publishing, 2016.
Aduana, Nick L. Entrepreneurship in Philippine Setting for Senior High School, 2017, C&E publishing,
Inc.p.46-51
Aduana, Nick L. Entrepreneurship in the Philippine Setting for Senior High School. Quezon City. C & E
Publishing, Inc. 2016.
Angeles A. De Guzman, Entrepreneurship for Senior High School Applied Subject ABM Strand, Lorimar
Publishing, p.1 -5
Batisan, Ronaldo S. Entrepreneurship Module, Diwa Senior High School Series, Diwa.
Batisan, Ronaldo S., Entrepreneurship: Diwa Senior High School Series, Diwa Learning Systems Inc., p.
16-20
Banastao, C.,& Frias, S.(2008) Entrepreneurship. Quezon City Philippines: C & E Publishing, Inc.
De Guzman, Angeles A., Entrepreneurship for Senior High School Applied Subject ABM Strand, Lorimar
Publishing, p. 25-26
Habaradas, Raymund B. and Tullao,Jr., Tereso S. Pathways to Entrepreneurship,2016,Phoenics publishing
house,p.17-28
Habaradas, Raymund B. and Tullao, Jr., Tereso S., Pathways to Entrepreneurship, 2016, Phoenics
publishing house, p. 17-28
Learning System Inc. Legaspi Village, Makati City Philippines, copyright 2016.
Lopez, Jr. Rafael M. Fundamentals of Accounting, 2014-2015 Edition
Lopez, Rafael Jr. Basic Accounting for Non-Accountants. 2015
Lopez, Rafael Jr. Fundamentals of Accounting. 2016
Morato Jr Eduardo A.., Entrepreneurship, 1st ed., Manila, Philippines: REX Books Store, p.13.
Morato, Eduardo A. Entrepreneurship. Manila. Rex Bookstore, Inc. 2016.
Morato, Eduard, Jr. A. Entrepreneurship, Rex Bookstore 2016
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Rabo, Tugas, and Salendrez, H.E. Fundamentals of Accountancy, Business and Management, Vibal Group
Inc. 2016
Teaching Guide for Senior High School, Fundamentals of Accountancy, Business, & Management 1,
CHED in collaboration with PNU
Teaching Guide for Senior High School, Fundamentals of Accountancy, Business, & Management 2,
CHED in collaboration with PNU
Teaching Guide for Senior High School, Business Finance, CHED in collaboration with PNU
ELECTRONIC RESOURCES
https://www.tutorialspoint.com/entrepreneurship_development/entrepreneurship_development Business
Dictionary. http://www.businessdictionary.com/defination/market-size.html
“Forecasting” Business dictionary, Accessed December 10, 2018,
http://www.businessdictionary.com/definition/forecasting.html
“How to Make Revenue Forecasts” Smarta, Accessed December 10, 2018,
http://www.smarta.com/advice/business-planning/business-plans/how-to-makerevenue-forecasts/
Katie Jensen, “Factors Considered in Financial Forecasting.” Chron. Hearst Newspapers. Accessed
December 10, 2018. https://smallbusiness.chron.com/factorsconsidered-financial-forecasting-
80716.html
https://www.slcbookkeeping.com/blog/bid/207078/Bookkeeping-Tasks-for-Every-Partof-the-year
https://www.thebalancesmb.com/steps-to-increase-small-business-profits-1200720
https://www.wikihow.com/Calculate-Profit
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La Salette of Jones,Inc.
Jones, Isabela
3313 PHILIPPINES
PAASCU Level 2 Accredited
F-mail Address: lasaletteofjones2020@gmail.com
Learning Management System: https://lsjonesclms.online
IV. LEARNING ACTIVITY SHEET
SUBJECT: ENTREPRENEURSHIP MODULE NO.: 7
Name: _____________________________________________ Score: ______________________
Grade/Section: ______________________________________ Date: _______________________
Activity I – Problem Solving:
Directions: Solve the given problems. Complete solution is required. Use the back of this Learning Activity
sheet if necessary.
1. John Paul bought a dozen of smartphones for Php 160,000.00 with a discount of 5%. She sold
half dozen at a price of Php 20,000.00 per unit. However, a new model of smartphone became available in
the market, so she sold the remaining half dozen @ Php 16,000.00 each unit. Annie incurred an
administrative expense amounting to Php 10,000.00 and a selling expense amounting to Php 6,000.00.
Compute the following requirements:
a) Net Income
b) Gross profit rate
c) Operating profit margin rate
d) Net profit margin rate
e) Return on Investment
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La Salette of Jones,Inc.
Jones, Isabela
3313 PHILIPPINES
PAASCU Level 2 Accredited
G-mail Address: lasaletteofjones2020@gmail.com
Learning Management System: https://lsjonesclms.online
V. LEARNING ACTIVITY SHEET
SUBJECT: ENTREPRENEURSHIP MODULE NO.: 7
Name: _____________________________________________ Score: ______________________
Grade/Section: ______________________________________ Date: _______________________
Activity II – Problem-Solving Analysis:
Directions: Solve the given problems. Complete solution is required. Use additional sheet/s of paper if
necessary.
1. A Swatch owner decided to offer 20% discount for a particular brand of watch that sells at Php
45,000.00. By doing so, his average sales increased from 5 watches to 12 watches a day. If he
bought one watch at a price of Php 32,000.00 from the supplier, by how much was his daily profit
increased or decreased by offering such discount on the watch?
Computation:
Explanation:
9
2. Bakekang went to La Trinidad, Benguet and bought 20 jars of strawberry jam for P 3,500.00 with
15% discount. When she got back to Quezon City, she sold 10 of the jars for a total of P 1,800.00
and the rest as P185.00 each. How much profit did Bakekang again?
Computation:
Explanation:
10
