1.6 Revenue, Costs, Profits and Cash Flashcards
What’s the formula for Sales Revenue?
Price x Quantity
What’s the formula for Total Costs?
Fixed Costs + Variable Costs
What’s the formula for Profit?
Total Revenue - Total Costs
Define Variable Costs
Costs that change with output
Define Fixed Costs
Costs that stay the same in relation to output
What’s the formula for Average Costs?
Output
What’s the formula for Percentage Change?
Old Value
Define Break-Even
The point at which there is no profit and no loss
What’s the formula for the Break-Even point?
Contribution
Define contribution
The difference between the price of a product and its variable costs
What’s the formula for contribution?
Selling Price - Variable Costs
Give 2 limitations of Break-Even analysis
- They are only predictions and fixed costs may change
- External factors may force a reduction in price
Define Margin of Safety
The volume by which sales are above the breakeven point
What is the formula for the Margin of Safety?
Volume physically able to be sold - Break Even Point
What’s Gross Profit?
Profit, not taking fixed costs into account
What’s the formula for Gross Profit?
Sales Revenue - Variable Costs
What’s Operating Profit?
Profit, taking all costs into account
What’s the formula for Operating Profit?
Sales Revenue - Total Costs
What’s the formula for Net Profit?
Operating Profit - Interest and Taxes
What’s the formula for Profit Margin?
Profit
————- (x100%)
Turnover
What’s the formula for Gross Profit Margin?
Gross Profit
———————- (x100%)
Sales Revenue
What is the Operating Profit Margin?
A measure of how efficiently resources are being used
What’s the formula for Operating Profit Margin?
Operating Profit
———————— (x100%)
Sales Revenue
What’s the formula for Net Profit Margin?
Net Profit
———————- (x100%)
Sales Revenue
What does the Net Profit Margin tell you?
A firm’s financial Performance
What is the Statement of Comprehensive Income?
Profit and loss accounts where you begin with sales revenue and deduct each cost to arrive at a final measure of either profit or loss
What is the downside of advertising? (2)
- Costly
- May not work
What is the added advantage of Customer Loyalty Rewards?
Allows you to see purchasing patterns
Give 2 disadvantages of cutting staff
- Worsens customer service
- Lowers staff morale
Give as many ways as possible of lowering costs
- Cut staff
- Cut wages
- Move location
- Change supplier
Give as many ways as possible of increasing revenue
- Change price
- Advertising
- Customer loyalty rewards
- Expansion
Define cash outflow
The amount of money coming out of a business
Define net cash outflow
The amount of money coming in and out of a business over a given time
What’s the formula for Net Cash Flow?
Cash Inflow - Cash Outflow
Give the main 2 advantages of Cash Flow Forecasts
- To show potential investors that they are a financially viable investment
- To predict necessary stock levels
Give 2 evaluation points of using Cash Flow Forecasts
- Is a prediction and can be inaccurate
- Doesn’t take unexpected factors into account
