Financial terms and calculations Flashcards
What is revenue and how is it calculated?
It is the income earns from sales
- (sppu x output)
What is profit and how is it calculated?
The amount left after all costs have been declared
- (total revenue - total costs)
What is a fixed cost?
A cost that stays the same
E.g rent, salary
What is a variable cost?
A cost that changes
E.g wages, utility bills or stock
How do you calculate total cost?
Total cost = fixed cost + total variable cost
Total variable cost= vcpu x output
what is the formula for Revenue or sales turnover = income made from sales
Sppu x output
Selling price per unit
Profit definition and formula
Profit is the income left after all costs have been taken away
Total revenue- total costs
What is break even
The output at which total revenue is exactly equal to total costs
Why is break even useful?
To know when they are making a profit
Know if they need sources of finance to help
To see if the idea is viable(work)
To show the bank to see if they can get a loan
What is the margin of safety meaning?
The output where the business is earning a profit
How to calculate total costs
Total fixed costs + total variable costs
How to calculate total variable cost
Vcpu x output
Formula for average rate of return
Average annual profit divided by initial investment x 100
Average annual profit = total revenue- total costs divided by no.of years
