Definitions
What is a fixed cost?
A cost which remains constant regardless of whether production increases or decreases (i.e rent).
What is the formula for sales revenue?
Selling price x number of sales
What is a likely outcome of this factor? A new competitor has entered the market offering a similar product or service at a much lower price.
Some customers will likely purchase products from the competitor. This will reduce sales, sales revenue, gross profit, net profit and ultimately will decrease viability.
What are expenses?
Expenses are fixed costs. Costs that are constant regardless of how many products are made.
What is a variable cost?
A cost which varies depending on the quantity produced (i.e flour for a muffin business).
What is the formula for gross profit?
Sales revenue - cost of goods sold
What is a likely outcome of this factor? A key piece of technology used by the organisation has failed, causing a major disruption to its operations.
What is net profit?
Net profit is the amount of money that the owners can take home after all costs are paid (variable costs and fixed costs).
What is the definition of pūtake?
Pūtake - origin or reason for being.
What is the formula for net profit?
Gross profit - expenses
What is a likely outcome of this factor? There has been a significant change in a government regulation that directly impacts the organisation's business.
Regulations will result in the business having to change their business practices that will increase their costs (likely their expenses). An increase in expenses will reduce net profit. Ultimately, there will be a decrease in business viability.
What is gross profit?
What is sales revenue?
Sales revenue is the amount of money coming into the business from selling products.
What is the formula for break-even?
What is a likely outcome of this factor? A key component or raw material the organisation relies on has suddenly increased in price.
An increase in the price of inputs will result in an increase in the COGS, this will decrease gross profit, net profit and will ultimately decrease viability.
What is financial information?
Financial information is information that is drawn from financial models or is related directly to financial aspects (i.e fixed costs, variable costs, net profit, market research data).
What is the break-even point?
Break-even is the minimum amount of sales required to pay all of the fixed costs.
If the variable costs were $10 for 10 units, what would the variable cost per unit be?
$10 / 10 = $1 per unit
What is a likely outcome of this factor? There have been unfair negative customer reviews about the organisation's good or service.
Unfair reviews could result in customers choosing to purchase products from your competitor. This would reduce sales, sales revenue, gross profit, net profit and ultimately would decrease viability.
What is non-financial information?
Non-financial information is information that is not directly related to finances. This information concerns other things such as (pūtake, target market information or stakeholders).