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Questions and Answers
What is the formula for calculating revenue?
What is the formula for calculating revenue?
- Revenue = quantity sold * price (correct)
- Revenue = average cost per unit * output
- Revenue = total cost + profit
- Revenue = current assets - current liabilities
What does the gross profit margin express?
What does the gross profit margin express?
- The relationship between gross profit and revenue (correct)
- The percentage of revenue that exceeds total costs
- The total profits earned before expenses
- The profitability of a company's assets
How is the net profit margin calculated?
How is the net profit margin calculated?
- Net profit margin = current assets - current liabilities
- Net profit margin = gross profit / revenue * 100
- Net profit margin = net profit / revenue * 100 (correct)
- Net profit margin = total assets / total liabilities
What is working capital a measure of?
What is working capital a measure of?
What does the margin of safety indicate?
What does the margin of safety indicate?
Flashcards
Revenue
Revenue
The amount of money a business makes from selling its products or services. Calculated by multiplying the quantity sold by the price per unit.
Profit
Profit
The difference between the total revenue and the total costs. Calculated by subtracting total costs from revenue.
Gross Profit
Gross Profit
The difference between the selling price of a product and the cost of producing it. Calculated by subtracting the total cost from the revenue.
Contribution Margin
Contribution Margin
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Working Capital
Working Capital
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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.
