Finance

• Revenue = Price x Quantity
• variable costs = cost per unit x output
• total costs = fixed costs + variable costs
• profit = revenue - total costs
• break even = total fixed costs / selling price - variable cost per unit
• contribution = selling price - variable cost per unit
• gross profit = total revenue - cost of sales
• net profit = gross profit - expenses
• net profit margin = net profit / revenue x100
• gross profit margin = gross profit / revenue x100
• net cash flow = inflow - outflow
• closing balance = opening balance + net cash flow
• 10 sources of finance:

  • retained profit
  • owners capital
  • share capital
  • venture capitalists
  • selling assets
  • bank loan
  • friends and family
  • overdraft
  • trade credit
  • leasing
• breakeven - number of units that need to be sold for a business to cover all of their costs
• profit and loss account - is a financial statement to see whether the business made a profit or loss over a trading period
• The main components of a profit and loss account are:

  • sales revenue
  • cost of sales
  • gross profit
  • expenses
  • net profit
• a profit and loss account is important to :

  • owners - compare performance
  • banks - lend money
  • shareholders - expected size of dividends
  • employees - job security
  • suppliers - future orders and trade credit
  • government - tax
  • competitors - compare performance
• cash - is money a business has that is readily available to spend on day to day expenses
• profit - is money left over after all costs are paid
• cash flow - is the flow of money into and out of a business
• cash flow forecast - is a prediction of the flow of money into and out of a business
• Cash inflows:

  • share capital
  • owners capital
  • income from sales
• cash outflows:

  • overhead costs
  • rent
  • raw materials
• main reasons of cash flow problems are:

  • lower than expected revenues
  • rising costs
  • poor management