GCSE Business (OCR)

Topic Summaries

Finance

Profit margins and average rate of return (ARR)

Profit margins measure how much profit a business makes as a percentage of its revenue. These help assess financial performance and whether an investment is worthwhile.

  • Profit margins: higher margins suggest efficient operations and pricing.
    • Gross Profit Margin (%) = (Gross Profit ÷ Revenue) × 100
    • Net Profit Margin (%) = (Net Profit ÷ Revenue) × 100
  • Average rate of return (ARR): helps a business assess the profitability of an investment over time.It compares the average annual profit from an investment to the initial cost.
    • ARR = (Average Annual Profit ÷ Investment Cost) × 100
  • Example:
    • Investment = £10,000
    • Profit per year = £2,000 over 5 years
    • ARR = (£2,000 ÷ £10,000) × 100 = 20%

Unlock Profit margins and average rate of return (ARR)

Sign up to unlock the rest of this topic — plus every other topic, video, flashcard set and eBook guide in your SnapRevise+ subscription.

Cancel anytime — instant access the moment you sign up.

Previous Gross profit and net profit Next Statement of financial position (Balance Sheet)