6.4 Financial Terms and Calaculations Flashcards
(14 cards)
What is a cost?
Anything that a business has to pay for
What are the three main ways costs are split up into?
Fixed costs
Variable costs
Total costs
What are fixed costs?
Costs for a business that do not change
What are some examples of fixed costs?
Rent
Insurance
Salaries of staff
What are variable costs?
Costs that change depending in the output of the business
What are some examples of variable costs?
Petrol
Raw materials
Postage
What are total costs?
Simply just fixed and variable costs together
What is the equation for total costs?
Fixed costs + variable costs
How do you calculate revenue?
Selling price x quantity sold
How do calculate average annual profit?
Total profit / number of years
How do you calculate the Average Rate of Return? (%)
(Average annual profit / cost of investment) x 100
What is break even?
Where revenue and total costs are the same
What is the Margin of Safety?
The amount of sales that the business can let fall before they reach a break-even
How do you calculate the Margin of Safety?
Actual sales - break even sales
