financial terms Flashcards
(13 cards)
sales turn over-definiton-purpose
• company’s total amount of products or services sold over a given period of time
•need to know to compare and see if they need to change
revenue-definition-equation
•money companies earn by selling their products and services
•Revenue = Number of items sold x Average Price
estimate revenue-how
how?
•previous experience
•competition
•estimate items they will sell x price
estimate revenue-dangers
may over/under estimate
leads to borrowing to much money
order to much or little stock
costs-definition-types
•amount of money business spent on its goods and services
•fixed-dosnt change depending on num of item sold(rent,salaries,utilities,permits)
•variable-changes depending on number of items sold (materials,packaging,shipping)
cost of sales-definition-equation
•total of all cost used to provide product/services sold
•profit/loss=sales income-expenses
accounting period-definition-why
•period of time that covers certain accounting functions(quarter/fiscal year)
•for consistency,owners and investors use to compare performance
gross profit-definition-equation
•amount left from revenue after you have paid cost of sales
•gross profit=revenue-cost of sales
net profit-definition-equation
•amount left after sales cost and expenses deducted from revenue
•net profit=gross profit-expenses
ratio analysis-purpose
•compares two pieces of financial information
•improves decision making
performance/profitability ratio
asses ability to earn profits from its sales/balance sheets/share holders equity
gross profit margin-equation-purpose
•gpm=gross profit/revenue x 100
•%
•reflects how successful business is at generating revenue
net profit margin-equation-purpose
•npm=net profit/revenue x100
•%
•show how much money from revenue is turned into profit
