1.6 Revenue, Costs, Profits and Cash Flashcards
(26 cards)
How to calculate sales revenue
Price x Quantity sold (sales volume)
How to calculate average cost
Total cost / Quantity sold
What is a fixed cost?
The costs that have to be paid before anything is actually produced. (A.K.A. Overheads) e.g. premises, staff, insurance, advertising.
What is a variable cost?
The cost of raw materials, labour, energy and anything that directly relates to the product.
How to calculate total costs
Variable costs + Fixed costs
How to calculate basic profit
Total revenue - total costs
How to calculate percentage change?
Q1 = original amount Q2 = new amount
Q2 - Q1 / Q1 X 100
What is contribution and how do you calculate it?
The difference between the price of a product and its variable cost. Every time a product is sold, the contribution helps pay off the fixed costs of the business. After break-even, profit is made.
Price - Average Variable Costs
What is the break-even point (BEP)?
The level of output at which total revenue is equal to total costs. Neither a profit or loss is being made.
If output is more than break-even is the business making a profit or loss?
Profit
Because revenue is larger than costs
If output is less than break-even is the business making a profit or loss?
Loss
Because the revenue isn’t large enough to cover costs
What does a break-even graph look like?
DRAW IT
Google the answer
How to calculate the break-even point?
Fixed Costs / Contribution
Contribution = Price - Average variable costs
What is the margin of safety?
The difference between the actual level of output and the breakeven level of output. It basically shows how little a business can make before it makes a loss.
Is having a large margin of safety a good thing?
Yes, it puts the business in a safer position
What are the ads/disads of break-even analysis?
A - Assesses a business idea. Finds the level of output needed. Shows the impact of one thing on another.
D - The model assumes many things such as costs and revenue staying constant. Markets are dynamic.
What are the 4 stages of calculating net profit?
Revenue - variable costs Gross profit - fixed costs Operating profit - tax and interest Net profit
What are the calculations for:
- Gross profit
- Operating profit
- Net profit
Gross = revenue - variable costs
Operating = revenue - (fixed + variable)
Net profit = revenue - (fixed + variable) - taxes - interest
What is the statement of comprehensive income?
Profit and loss account, shows the company’s net profit and loss over a given time period. Minus values are in brackets.
How do companies measure their profit?
Profit margins - tells the business what percentage of their revenue is actually profit. The ratio represented as a percentage.
What are the 3 profit margins and how to calculate them?
Gross, operating and net
Profit (can be any of the 3) / turnover x 100
Why are profit calculations and statements useless on their own?
They were designed to be compared, so more data is needed to compare the levels year by year or business to business.
What is cash?
The money the business currently has availability to.
What is a cash flow forecast?
A statement over time of the cash entering and leaving a business. the difference between inflow and outflow is the net cash flow and indicates if the business is able to stay alive
