6.3 Financial Terms & Calculations

Question 1

Revenue

Answer 1

The income that a firm receives from selling its goods or services. Also known as turnover. Measured by number of units sold multiplied by the price.

Question 2

Sales

Answer 2

The number of products sold by a business

Question 3

Costs

Answer 3

Spending that is necessary to set up and run a business.

Question 4

Fixed costs

Answer 4

Costs that do not change when a business changes its output.

Question 5

Variable costs

Answer 5

Costs that vary directly with the business’s level of output.

Question 6

Total costs

Answer 6

Fixed costs + variable costs

Question 7

Investment

Answer 7

Takes place when a business buys an asset, such as a factory, in the hope of making a profit from its use.

Question 8

Average rate of return (ARR)

Answer 8

Compares average yearly profit from an investment with the cost of the investment and is stated as a percentage.

Question 9

Break-even

Answer 9

the level of production at which a business’s total costs and revenue from sales are equal.

Question 10

Break-even chart

Answer 10

Shows a business’s costs and revenues and the level of production needed to break even.

Question 11

Margin of safety

Answer 11

Measures the amount by which a business’s current level of production exceeds its break-even level of output.