1.6 revenue, costs, profit, and cash Flashcards
fixed costs
don’t change depending on output
variable costs
change depending on the level of output
total costs
fixed costs + variable costs
revenue
selling price x quantity sold
profit
total revenue - total costs
average cost
total cost ÷ quantity sold
% change
change ÷ original x 100
contribution
selling price - variable cost per unit
break even point
when total costs is equal to sales revenue
margin of safety
actual level of output - break even level of output
gross profit
sales revenue - variable costs
operating profit
gross profit - fixed costs
net profit
operating profit - taxes and interest
statement of comprehensive income
shows a businesses profit or loss over a period of time
high quality profit
profit from those income streams will continue well into the future
low quality profit
exceptional sell offs or events
benefits of break even analysis
- helps assess strength of business idea
- helps assess level of output needed to make profit
- shows impact of changes in price
- helps support application of finance
limitations of break even analysis
- model assumes costs rise steadily (but eos reduce cost when output increases)
- assumes all output is sold
- only a forecast
- markets are dynamic
profit margin
profit/turnover x 100
cash
money available to a business to cover costs
cashflow forecast
statement over time of the cash entering a business from it’s sales and the cash leaving a business to pay for it’s costs
