FinancePosted by Trusty Owl Fri, April 07, 2017 10:19:25
Break-Even analysis is a tool used by businesses to forecast the profit/loss a business could make depending on the quantity of goods or services sold.
Read through the presentation above to understand the principles of break-even analysis and the variables that can affect the position of the BREAK-EVEN POINT.
When studying Break-Even Analysis you need to understand the limitations of it as a decision making tool. Break-Even Analysis is quite a simplistic tool that does not take into account external factors such as the sale of competitor's products. It assumes that all products/services produced will be sold. Break-Even Analysis requires the use of charts which need to be manipulated according the changes in price that will be charged.
FinancePosted by Trusty Owl Fri, April 07, 2017 10:09:25
Businesses need funds in order to run their business. Not all the money needed by the business will come from the sale of goods or services or from the owners of the business.
The presentation below covers the main sources of finance that businesses can use.
FinancePosted by Trusty Owl Fri, April 07, 2017 10:04:29
Use the presentation to understand the purpose of business accounting.
FinancePosted by Trusty Owl Thu, March 16, 2017 20:08:13
Businesses have costs. These can be VARIABLE or DIRECT costs which are directly related to the quantity of goods produced. If more is produced then the variable costs will increase.
Fixed costs or INDIRECT costs are those that are not directly to production. Examples of fixed costs will be premises costs, utility costs or vehicle maintenance. These costs would still have to be paid whether or not a business produces its goods or services.
Revenue is calculated by multiplying the quantity of goods sold by their selling price.
Profit or loss is calculated by taking TOTAL COSTS (Total Variable Costs + Fixed Costs) away from TOTAL REVENUE. If revenue is higher than total costs then a PROFIT is being made. If total costs are higher than total revenue then a LOSS is being made.
Cash flow forecasting allows a business to identify periods where there may be high cash inflows and periods where there might be high levels of expenditure.
Although costs are involved in the calculation of profit it should be remembered that a cash flow forecast cannot help with the prediction of profit. This would have to be carried out by using BREAK-EVEN ANALYSIS.
FinancePosted by Trusty Owl Wed, March 15, 2017 16:20:57
Do not mix up CASH FLOW with PROFIT/LOSS. This is a key element of your
understanding and you will always be tested on your ability to know the
INFLOW is money that comes in a business in the form of REVENUE, LOAN, CAPITAL.
A cash inflow may also include payments from debtors. Cash is needed to allow a
business to pay its EXPENSES.
OUTFLOW is money that flows out of a business as a form of EXPENDITURE. This
may be wages, salaries, rent on premises, marketing, paying for leases or pay
back a loan.
needs to manage its cash inflows and outflows so that it can pay all of its
normally produce a cash flow forecast to assess the position of their cash flow
position. They also produce cash flows
in order to support a business plan. A cash flow is produced to cover a certain
period of time from a few months to an entire year. The key terminology that
you will need to understand is below:
A cash flow forecast will include:
Cash inflows (receipts)
Cash outflows (payments)
Net cash flow (inflows minus outflows)
Opening balance (this is the same as the closing balance of the previous
Closing balance (opening balance combined with net cash flow)
Make sure you review your own notes on cash flow.