BUSINESS TERMS — BILKUL SIMPLY
Bilkul Bazaar | Sunday Special
Know the Term. Understand the Business.
1. TURNOVER
What it means:
Turnover is the total value of sales made by a business during a particular period, usually a financial year. It shows the scale of a company’s sales activity, but it is not the same as profit.
Simple example:
If a company sells products worth ₹50 crore in a year, its turnover is ₹50 crore. After paying production costs, salaries, rent, interest, taxes and other expenses, the company may have a much smaller amount left as profit.
Remember:
Turnover tells you how much a business sells; profit tells you how much it earns after expenses.
2. GROSS PROFIT
What it means:
Gross profit is the money a business earns from selling its products or services after deducting the direct cost of producing or purchasing them. It gives an early indication of how profitable the core product or service is.
Simple example:
Suppose a retailer sells goods worth ₹10 lakh. If those goods cost the retailer ₹7 lakh to purchase, the gross profit is ₹3 lakh.
Why it matters:
A healthy gross profit gives a business money to pay for other expenses such as salaries, rent, advertising and administration.
Remember:
Sales − Direct Cost = Gross Profit.
3. NET PROFIT
What it means:
Net profit is the amount a business has left after all major expenses have been deducted from its income. These can include operating expenses, salaries, rent, interest, depreciation and taxes.
Simple example:
A company earns ₹10 crore from its business. After spending ₹7 crore on various costs and ₹1 crore on taxes and other expenses, it may be left with ₹2 crore as net profit.
Why it matters:
Net profit gives investors and business owners a clearer picture of how much money the company actually made after its expenses.
Remember:
Net profit is the money left at the bottom line.
4. DIVIDEND
What it means:
A dividend is a portion of a company’s profit that is distributed to its shareholders. Companies may choose to distribute part of their profits while retaining the rest for expansion, new investments or future needs.
Simple example:
If a company declares a dividend of ₹5 per share and an investor owns 1,000 shares, the investor would receive ₹5,000, subject to applicable rules and taxes.
Why it matters:
Dividends can provide shareholders with a direct return on their investment. However, not every profitable company pays dividends; some prefer to reinvest their profits into the business.
Remember:
Dividend = A share of company profit given to shareholders.
5. CAPITAL EXPENDITURE (CAPEX)
What it means:
Capital expenditure, commonly called CapEx, is money a business spends on buying, building or significantly improving assets that are expected to be useful for several years.
These may include factories, buildings, machinery, vehicles, technology infrastructure or major equipment.
Simple example:
If a manufacturing company spends ₹20 crore to install a new production line, that spending is generally considered capital expenditure because the machinery will support the business for years.
Why it matters:
High CapEx can indicate that a company is investing in future growth. But heavy capital spending can also put pressure on cash flow, so investors look at both the size and purpose of such investments.
Remember:
CapEx is money spent today to build or improve the business for the future.
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