Unit 4: Finance Flashcards
Capital expenditures
money spent on purchasing fixed assets; businesses buying items of value which will allow the company to generate revenue.
Examples of capital expenditures?
things that one owns and lasts more than a year.
- cash register
- clothing racks
- new bathrooms
Revenue expenditures
money spent on variable assets; businesses buying items of value which will allow the company to operate on a daily basis.
Examples of revenue expenditures?
things that change or you use them.
- clothes
- chicken/food
- straws
Two ways money needed for capital and revenue expenditures be gained?
internal finance and external finance
Internal finance
- personal funds from jobs
- family from spouse and kids
- working capital from selling a product or service of revenue and sales
- retained profits
Formula: Sales
sales = (amount)(quantity)
External finance
- initial public offering
- loan capital from long-term finance/mortgage
- overdrafts from taking out more money than there are in the bank
- venture capital
- business angels who help
- debt factoring
- credit cards
Formula: Total cost
total cost = fixed cost + variable cost
Fixed cost
a fixed amount of money that is paid every time in order to produce.
Formula: Variable cost
variable cost = (cost/per)(quantity)
Formula: Profit
profit = revenue - costs
Formula: Revenue
revenue = (quantity)(price)
What is break even?
when total cost = total revenue
Formula: Break Even Quantity
break even quantity = fixed cost + variable cost (Q) = price (Q)
Formula: Safety Margin
safety margin = demand - break even quantity
Formula: Profit in BE analysis
profit = (safety margin)(unit contribution)
Formula: Unit Contribution
unit contribution = price - variable cost
