chapter 7 Flashcards
(58 cards)
Payback period
Estimated time required to earn sufficient net cash flow to cover start up investment
Variable costs
Expenses that very directly with changes in production or sales volume
two types of variable costs
Cost of goods/services sold and other variable cost
fixed cost
Expenses that must be paid regardless of whether or not sales are being generated
if a business does not have enough sales to cover it’s fixed cost it will lose money
calculating critical costs
Total gross profit
economics of one unit
inventory cost
total gross profit (contribution margin)
Gross profit per unit the selling price minus total variable cost plus other variable costs
EOU when multiple products sold
A business selling a variety of products have to create a separate EOU for each item to determine whether each is profitable
Inventory costs
Expenses associated with materials and direct labor for production until the product is sold
average contribution margin
A business selling a variety of products can use average COGs to determine an average contribution margin
Seven common fixed operating costs USAIID
utilities salaries advertising interest insurance rent deprecreciation
Fixed operating cost
Expenses that do not vary with changes in the volume of production or sales
depreciation
The percentage of value an asset subtracted periodically to reflect the declining value
accounting
The systematic recording reporting and analysis of the financial transactions of a business records of and flowing out loud
receipt
document with date and amount of purchase
invoice
A bill or statement that shows the product or service sold and the amount the customer is to pay
cash flow basics
Cash is the energy that keeps your business flowing
the success of the business will depend upon cash from start up through existence
cash is essential for initial investment on going operations and growth
cash flow statement
Financial document that tracks the money coming into you and going out of an organization
working capital
The value of current assets minus current liabilities
Tells how much cash the company would have if it paid it short term debt with the cash it had on hand
cash flow cycles
Cash flow cycles of care for every business in our important to understand because they make a difference between success and failure
cash flow seasonal
cash flow can be seasonal for many business amount of cash flowing into a business may depend on where the business is in its fiscal year
Cash flow statement
inflows and outflows of cash are divided into three categories operations investment and financing
cash flow equation
Cash flow = cash on hand + cash receipts -cash disbursements
Healthy cash one
Keeping sufficient cash on hand and available to pay your bills any timely fashion and in general to have financial resources available to you when you need them
burn rate
The pace at which a company spends capital before generating positive cash flow
