A business can report higher profit and still be less profitable than last year. This page shows you why, and how to write about it in the exam.
If a firm's profit went up, why does the case study say it is doing worse?
Profit is revenue minus costs, and it appears at three levels: gross profit, operating profit and profit for the year. Profitability compares profit with revenue, so it shows efficiency. Profit is not cash, because credit sales and spending on assets move cash differently. Raising revenue or cutting costs can lift profit, but each route has trade-offs.
Year 12 (7137/7138): This is AS content (AS is the first-year qualification), taught in Year 12 under 3.1.4 Financial management. Expect Define and Explain questions in AS Paper 1, then Analyse, Assess and Evaluate. At A-level the same content is tested in Paper 1 and can return in Paper 3.
Year 13 (7132, June 2027): Your course covers improving profit and analysing financial performance in section 3.5. Use this page to sharpen the three levels of profit and the profit versus profitability contrast. Treat the exam-board references here as 7138 labels, not your own.
Profit is what is left after a business has paid its costs. The specification asks you to know three levels of it, and to tell profit apart from profitability.
Illustrative figures: a bakery sells 100,000 items at £5. Revenue is £500,000. Cost of sales is £300,000, so gross profit is £200,000.
Overheads are £140,000, so operating profit is £60,000. Interest is £10,000, which leaves £50,000 before tax. At an assumed tax rate of 25%, tax is £12,500 and profit for the year is £37,500.
The contribution route gives the same operating profit here. Variable costs are £300,000, so total contribution is £200,000. Take off fixed costs of £140,000 and profit is £60,000. In real accounts, cost of sales can include some fixed costs, so gross profit and contribution are not always equal.
Real accounts follow the same order. For 2025, Greggs, the UK bakery chain, showed cost of sales of £829.1m, gross profit of £1,322m, operating profit of £183.7m and profit after tax of £122.2m.[2]
Profit is an amount in pounds. Profitability is profit measured against something else, usually revenue. It tells you how well the business turns sales into profit.
A rise in profit with a fall in margin means costs grew faster than revenue. No Annex 8 model is needed for this page. ROCE (return on capital employed), which is on the Annex 8 list, is a profitability measure covered on a neighbouring page.
Profit and cash are different. Profit is calculated when a sale is made, even if the customer has not yet paid. Cash is the money actually in the bank.
A profitable firm can run short of cash because customers pay late, because it buys stock in advance, or because it spends heavily on new equipment. Spending on equipment is not deducted from profit all at once, but the cash leaves immediately. A loss-making firm can have cash for a time, for example after taking a loan.
The gap can run the other way too. Greggs reported an operating cash inflow of £273.7m for 2025.[4] Its profit for the year was £122.2m.[1] The two numbers measure different things, so one cannot stand in for the other.
A firm can raise prices, sell more units, or add new products and services. Revenue rises, and if costs rise less, so does profit.
A firm can negotiate cheaper supplies, cut waste, automate work or reduce overheads. The saving goes straight to profit, so it is often quicker and more certain than winning new sales.
Tesco shows cost saving at scale. For the 53 weeks ended 28 February 2026 it reported adjusted operating profit of £3,152m on a 52-week comparable basis. It said a further c.£535m delivered through its Save to Invest programme, together with sales growth, more than offset investment in the customer offer and cost inflation.[3] The chart shows the mechanism: a cost saving lowers the TC line, and a higher price steepens the TR line.
In an Assess or Evaluate answer, do not simply list the two routes. Weigh them against the case study.
Greggs shows why margin matters. Its sales rose 6.8% to £2,151.2m in 2025, yet underlying operating profit fell 4.0% to £187.5m.[1] Its underlying operating profit margin fell from 9.7% to 8.7%.[1] The company put this down to higher fixed costs in manufacturing, logistics and technology capacity, and to lower like-for-like volumes.[6] Growth in sales was not enough, because costs grew faster.
So a strong judgement names the condition. For example: raising prices is likely to work if demand is inelastic and rivals are not cutting prices. Without those conditions, cost control may be the better choice.
Every AQA Business question uses one of five command words, each with a fixed mark tariff, and quantitative questions sit inside the 9 and 15-mark formats. The A-level papers have no 2 or 4-mark questions. Open each format to see how this topic appears in it. All questions here are original Curriculum Circle practice questions, not board questions.
On this topicAsks for a short, precise meaning of a profit term. Use the formula in words.
What earns the marksAO1 only: 2 marks for accurate knowledge, with no need for context.
CC practice questionDefine the term 'operating profit'. (2 marks)
On this topicAsks why profit and cash differ, or why a margin matters, in a named business. One developed point with context.
What earns the marksAO1 for the idea and AO2 for applying it to the business named.
CC practice questionExplain one reason why a café chain might make a profit but have little cash in the bank. (4 marks)
On this topicAsks for a chain of reasoning on how a revenue rise or a cost cut changes profit, or why profit and margin moved in different directions.
What earns the marksAO1 for knowledge, AO2 for context and AO3 for a clear chain of cause and effect.
CC practice questionAnalyse how a 5% price rise could affect the operating profit of a bakery chain. (6 marks)
On this topicAsks you to weigh a route to higher profit, such as cutting costs, and reach a judgement using case data.
What earns the marksAO1 to AO3 for the arguments, then AO4 for a judgement that depends on a condition.
CC practice questionAssess whether cutting costs is a suitable way for a regional bus company to raise its operating profit. (9 marks)
On this topicAsks you to compare two ways of raising profit, such as raising prices or cutting costs, and recommend one with reasons.
What earns the marksAO1 to AO3 for the analysis of both options and AO4 for a justified recommendation.
CC practice questionA garden centre wants higher profit. Evaluate whether it should raise prices or cut its staffing costs. (15 marks)
On this topicUses revenue, cost and profit data to calculate margins or profit, then judges what the figures show.
What earns the marksAO1 for the method, AO2 and AO3 for using the figures, and AO4 for a judgement based on them.
CC practice questionIllustrative figures: a firm has revenue of £800,000, cost of sales of £480,000 and operating expenses of £240,000 in Year 1. In Year 2, revenue is £880,000, cost of sales £550,000 and operating expenses £264,000. Calculate the operating profit and operating profit margin for each year and assess whether profitability improved. (9 marks)
| Weight | What it is | What it means on profit and profitability | |
|---|---|---|---|
| AO1 | 32.5% AS · 24.44% A-level | Knowledge and understanding of terms, concepts, theories, methods and models | State each profit level correctly and write the formulas accurately. Separate profit, profitability and cash by definition. |
| AO2 | 27.5% AS · 24.44% A-level | Application to the business context in the case study | Use the numbers and facts in the case study, such as revenue, cost lines and cash balances. Name the business and its situation. |
| AO3 | 20% AS · 26.66% A-level | Analysis of issues and their impact on individuals and organisations | Build chains: price rise, sales volume, revenue, margin, profit. Link a cost cut to profit and then to quality or revenue. |
| AO4 | 20% AS · 24.44% A-level | Evaluation of quantitative and qualitative information to make judgements | Compare margins as well as profit. Weigh the routes to higher profit and finish with a judgement that names what it depends on. |
Weightings are approximate and taken from the AQA AS 7137 and A-level 7138 specification [0].
A UK sandwich chain's revenue rose by 7% last year, but its operating profit fell. The owners can either raise prices or cut costs. Evaluate which course of action it should take to restore its operating profit. (15 marks)
A price rise lifts revenue per sale, so operating profit rises if sales volume holds. Because fixed costs such as rent do not change, every extra pound from price drops into profit. Cost cutting, such as cheaper ingredients or fewer staff hours, lowers costs directly, so operating profit rises without needing customers to change behaviour.
A price rise depends on how sensitive customers are. If sales are rising and demand is inelastic, the rise is likely to work. If rivals are cutting prices, volume could fall and profit with it. Cost cuts are more certain in the short run, but cheaper ingredients could harm the quality that attracts customers. I would recommend modest price rises on items with loyal buyers, alongside waste reduction, because this protects the margin without damaging the product.
Greggs's sales rose 6.8% to £2,151.2m in 2025, but underlying operating profit fell 4.0% to £187.5m. Its underlying operating profit margin fell from 9.7% to 8.7%, and profit for the financial year fell to £122.2m from £153.4m.[1] The company said higher fixed costs and lower like-for-like volumes drove the fall in operating profit.[6]
For the 53 weeks ended 28 February 2026, Tesco reported sales of £66,588m, up 4.6% at actual rates, and adjusted operating profit of £3,152m, up 0.8%. Profit grew far more slowly than sales, so cost inflation and investment in the customer offer held back the margin. Tesco said c.£535m from its Save to Invest programme helped offset them.[3]
Ryanair's pre-exceptional profit after tax rose 40% to €2.26bn in the year ended 31 March 2026, up from €1.61bn. Total revenue rose 11% to €15.54bn, so profit grew much faster than revenue. Its statutory profit for the year was €2,173.7m.[5]
Everything above is the topic page. The pieces below take it further. Each one trains a particular assessment objective rather than covering the topic again, and they are added over the year.
Figures and facts were checked against these sources on 2 November 2026. Worked numbers labelled "Illustrative figures" are invented for teaching.
The CC Business revision platform has timed practice on profit questions, and the Inner Academy's recorded lessons go through full-mark answers step by step.
See the Business platformThe Inner Academy