16 Questions
What is the key difference between profit and cash flow?
Profit considers costs incurred and revenue received, while cash flow considers cash inflows and outflows.
What is the main objective of a business in a situation where it cannot generate profits?
To break even
What is the margin of safety?
The amount a business sells in excess of its break-even point
What is the break-even point?
The level of sales where total costs equal total revenue
What is the purpose of calculating profit in the income statement?
To evaluate the financial performance of a business
What is the relationship between cash flow and business survival?
Cash flow is required for both short-term and long-term business survival
What is the purpose of calculating the break-even point?
To identify the level of sales and unit price needed to cover total costs
What is the formula to calculate the break-even output?
Break-even output = Fixed costs ÷ (Selling price − Variable costs)
What is the margin of safety?
The difference between the actual output and the break-even output
What is the assumption made when calculating break-even output?
All output is sold
What is the primary goal of a business in the long run?
To make a profit
What is one of the benefits of reducing costs for a business?
To pass cost savings on to customers via lower prices
What does a business aim to achieve in the short term?
Break even
What may a business do to increase revenue?
Introduce additional products or services
Why is making a profit essential for a business?
To provide funds for investment and remuneration for owners
What occurs when a business increases revenue while keeping costs under control?
The business will increase profits
Understand the importance of cash flow in a business and how it differs from profit. Learn about the calculation of cash flow and profit, and the significance of cash inflows and outflows. Test your knowledge with this quiz!
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