Advantages: can preict and plan for cash shortages, easy to review, banks can see whether the business ahas enough cash. Disadvantages: not always accurate, doesn't include emergencies, late payments, price changes, lower sales
4 of 13
Depreciation equation
(price when bought - price sold for) ÷ number of years owned OR x 100 for a percentage
5 of 13
ARR equation
(average annual profit ÷ initial outlay) x 100
6 of 13
Average annual profit equation
(total income - initial outlay) ÷ number of years
7 of 13
Payback month equation
income required ÷ (income during year of payback ÷ 12)
8 of 13
Payback
Advantages: quick, easy, understandable, concentrate short term. Disadvantages: ignores cash after payback and profitability overall, encourages short termism, doesn't look at timings
9 of 13
ARR
Advantages: accounts for profitability, easyily understood, tough, make comparisons, uses cash flows for whole project. Disadvantages: ignores timings and time value of money, inaccurate as based on estimates
10 of 13
Balance sheets
Advantages: quick, easy, shareholders can see if they want to invest, employees judge job security, creditors see if they will be paid back. Disadvantages: misleading, can be adjusted, small picture, inaccurate
11 of 13
Breakeven equation
Fixed costs per day ÷ (selling price - variable costs)
12 of 13
Breakeven
Advantages: clear, cheap, quick, simple, shows implications of price changes. Disadvantages: based on assumptions e.g. all stock sold so can be inaccurate, not valid for long as costs change, can't look at demand changes or price elasticity
Comments
No comments have yet been made