Unit 3 formulas and key terms 3.0 / 5 based on 2 ratings ? BusinessFinanceBTEC NationalEdexcel Created by: vickyxroseCreated on: 25-04-19 14:03 Fixed Cost Costs that do not change with output; they have to be paid regardless of how much a business produces 1 of 41 Variable Costs Costs that do change with output; these costs are directly linked to the product or service 2 of 41 Start-up cost Costs that a business has to pay when the business sets up. For example, fixtures and fittings 3 of 41 Operating Costs (running costs) Costs that have to be paid for the day to day running of the business. For example, heat, light, rent etc… 4 of 41 Total Costs TC = FC + VC 5 of 41 Revenue This is the money that comes into the business. It is also known as turnover or revenue 6 of 41 Revenue (formula) Selling Price per unit x Quantity sold 7 of 41 Net Profit This is the amount of money that the business earns AFTER paying for all of its costs 8 of 41 Net Profit (formula) GROSS PROFIT – OPERATING EXPENSES – NET PROFIT 9 of 41 Break-even Level of output where: Total Revenue = Total Costs 10 of 41 Break-even FIXED COSTS / Contribution per unit 11 of 41 Contribution per unit Selling Price per unit – Variable costs per unit 12 of 41 Total contribution Contribution Per Unit x Number Of Units Sold 13 of 41 Margin of safety This is the difference between your break-even point and the number of units you expect to sell 14 of 41 Margin of safety (formula) Actual Sales - Breakeven point 15 of 41 Cash Flow Forecasting This is a forecast the business makes for what it expects to have coming into the business and out of the business 16 of 41 Inflows Money coming into the business 17 of 41 Outflows Money going out of the business 18 of 41 Cost of sales Costs linked directly with the production of a product 19 of 41 Gross Profit Sales - Cost of sales 20 of 41 Net Profit Gross Profit - Expenditure 21 of 41 Income Statement (profit and loss) (SOCI) A statement of income and expenditure; usually produced every 12 months 22 of 41 Balance Sheets (statement of financial position) A statement outlining the financial position of the business 23 of 41 Assets Things of value that the business owns 24 of 41 Liabilities Things that the business owes 25 of 41 Sources of finance Ways in which the business can raise money. These can be internal (from within the business) and external (outside of the business) 26 of 41 Accruals This is when an expense is paid after the period to which it relates. 27 of 41 Profitability Ratios: Gross Profit Margin (gross profit/revenue) × 100 28 of 41 Profitability Ratios: Mark-up (gross profit/cost of sales) × 100 29 of 41 Profitability Ratios: Profit Margin (profit/revenue) × 100 30 of 41 Profitability Ratios: Return On Capital Employed (ROCE) (profit/capital employed) × 100 31 of 41 Measuring Liquidity: Current Ratio current assets / current liabilities 32 of 41 Measuring Liquidity: Liquid Capital Ratio (current assets – inventory) / (current liabilities) 33 of 41 Measuring Efficiency: Trade Receivable Days (trade receivable/credit sales) × 365 34 of 41 Measuring Efficiency: Trade Payable Days (trade payables/credit purchases) × 365 35 of 41 Measuring Efficiency: Inventory Turnover (average inventory/cost of sales) × 365 36 of 41 Net Assets (current assets + non-current assets) – (current liabilities + long-term liabilities) 37 of 41 Net Cash Flow Total Inflows – Total Outflows 38 of 41 Depreciation (1) Straight Line (Historic value-Scrap Value) / (Expected life) 39 of 41 Depreciation (2) Straight Line % x cost 40 of 41 Depreciation (3) Reducing Balance (% x NBV) or (Cost – depreciation to date x %). 41 of 41
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