In business or organization as well as in freelancing, profit-making is the key thing because at the end of the day if you are not in a profit-making place then obviously you will face stress and more especially you will face trouble to balance internal and external matters. Now the most important part of the Profitability framework in business or management is that profit calculation through the product and service line is pretty much hectic. For an experienced and knowledgeable leader that’s not because they have the people to calculate and if not then they gave the project to another firm. That’s why this calculation of financial statements, product and service details, previous and present data are the most important things. As we all know it has two branches, 1. Profit and another one is 2. Cost. We do a hypothesis of the Profit and Cost part then calculate it.
Profit
Profit is after completing all the expenses and spending all the costs from your revenue, the rest of the balance or money which you have saved in a fixed period like 1 month, 2 months, 1 year, etc.
Types of profit and calculation for Profitability Framework in business and management:
1. Gross Profit:
Gross Profit=Total Sales−COGs
2. Operating Profit:
Gross Profit – Operating Expenses = Operating Profit
Operating expenses is supposed 50$ then operating profit is 300$ – 50$ = 250$
3. Net Profit:
Net Profit = Operating Profit – Taxes & Interest
As per govt. regulations we have to pay taxes on many products and some time interests are also there. Suppose taxes and Interest is 30$ then Net Profit is 250$ – 30$ = 220$
Suppose overall revenue more elaborately sales is 500$ and the cost of goods which you have sold is 200$ thenGross Profit is 500$ – 200$ = 300$
Cost:
There are so many types of costs in infrastructure but for implementing
a framework or model basic three types of costs which is must be needed and those are
Cost Types for Profitability Framework in business and management:
1. Fixed costs:
This type of cost does not change. Even according to output it doesn’t too.
2. Variable costs:
These types of costs always change according to based on output or input
3. Semi variable costs:
Sometimes increasing or decreasing input based on output we have to negotiate some costs, these are called semi-variable costs like increasing labor for some specific or non-specific work
Profitability Framework in business and management brief summary:
The profitability framework is basically used in business and management or in problem-solving. This is the most important and basic framework for calculating profit. In practical cases you gonna have little data to calculate but you have to deep down with segmentation. Segmentation is breaking all the data into the smallest parts then solving each and every path and then calculating the above-mentioned cost and then using this framework you can calculate profit. Some time Top-down approach has been applied and sometimes the Bottom-up approach has been applied.
Key factors:
Cost decreases then Profit will increase if revenue is fixed
Profit is fixed but revenue increases then cost will increase
Most important, which we prefer, we always focus on cost-cutting. It is the most effective way to increase profit
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