Podcast
Questions and Answers
What is the formula for calculating revenue?
What is the formula for calculating revenue?
What does the gross profit margin express?
What does the gross profit margin express?
How is the net profit margin calculated?
How is the net profit margin calculated?
What is working capital a measure of?
What is working capital a measure of?
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What does the margin of safety indicate?
What does the margin of safety indicate?
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Study Notes
Cost and Revenue Calculations
- Total Cost: Calculated by multiplying the average cost per unit by the total output.
- Revenue: Equals the quantity sold multiplied by the selling price.
- Profit: Revenue less total costs.
- Total Costs: Sum of fixed and variable costs.
- Gross Profit: Revenue minus total costs.
- Gross Profit Margin: Expresses gross profit as a percentage of revenue; calculated as (gross profit / revenue) * 100.
- Net Profit: Gross profit reduced by fixed costs.
- Net Profit Margin: Measures net profit as a proportion of total revenue, calculated as (net profit / revenue) * 100.
Working Capital and Liquidity
- Working Capital: Difference between current assets and current liabilities.
- Current Ratio: Ratio of current assets to current liabilities, indicating short-term liquidity. Calculated as (current assets / current liabilities).
- Acid-Test Ratio: A more stringent liquidity measure, calculated by subtracting inventory from current assets and dividing by current liabilities. (Current Assets - Inventory) / Current Liabilities
Break-Even and Capital Employed
- Margin of Safety: Difference between maximum output and break-even output.
- Capital Employed: Total assets less total liabilities.
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Description
This quiz covers key concepts of cost and revenue calculations along with working capital and liquidity measures. Understand the formulas for total cost, profit, gross profit margin, and various liquidity ratios. Test your knowledge on how these financial metrics are computed and their significance in business finance.
