1.6.1 - 1.6.4 Flashcards
Sales volume
Physical quantity of products sold
Sales revenue
Sales - Total incoming payments for products sold
Turnover - Price x Quantity sold
Start-up costs
The initial costs a business faces when setting up
Capital spending
Funds used by a company to
Aquire/ upgrade/ maintain
physical assets such as
Property/ buildings/ industrial plants/ technology/ equipment
Investment
When a business buys premises and equipment now that will last over a period of years and produce goods/services which generate sales for the business
Operating costs/
Running costs
Fixed costs:
Costs which do not vary directly with output
e.g. rent/mortgage + insurance + utility bills + salaries
Variable costs:
Costs which vary directly with output
e.g. Labour (wages) + raw materials
Depreciation
The loss in value of goods over time
Law of diminishing returns
In the short run - adding additional units/labour helps but it will reach a maximum output and then delete again
Variable costs
Costs that vary at each payment (e.g. wages)
Costs that change with output
Fixed costs
Costs that don’t change (e.g. rent + materials) in the shirt term
Profit
Sales revenue - total costs
Selling price
The price at which the good/service is sold
Loss
When costs are greater than revenue
Contribution
Selling price in variable costs
Break-even point
When total costs = Total sales revenue
Break-even analysis
A useful tool for determining at what point a company/good/service will be profitable
Margin of safety
Current sales level - break even point
——————————————————— x 100
Current sales level
Margin of safety
Current sales level - break even point
——————————————————— x 100
Current sales level
Margin of safety
Current sales level - break even point
——————————————————— x 100
Current sales level
Barriers to entry
An obstacle stopping an individual/ entity from entering a market
Sunk costs
Start-up costs that cannot be recovered
Barriers to exit
An obstacle stopping an individual/entity leaving a market
Turnover
Amount of money coming into a business through sales
Statement of comprehensive income
Profit and loss accounts
Starts with a figure for sales revenue and deducts each different group of costs to arrive at measures of profit
Average variable costs
Output produced
Average fixed costs
Output produced
Gross profit
Sales - costs of goods sold
Net profit
Profit for the year
What revenue remains after the deduction of all operating costs
Insolvency
The state of being unable to pay money owed by a person/company on time
Cash flow forecast
A plan to show how much money a company expects to receive and pay out over a given time period
Cash inflows
Money coming in each month
e.g. sales and other income
Cash outflows
Planned payment per month
e.g. suppliers, rent, bills
Liquidity
The availability of liquid assets to a market/company
e.g. cash
