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Unit 5 - Finance - Coggle Diagram
Unit 5 - Finance
Fixed and Variable Costs
Fixed costs - costs that are not affected by the amount of products produced e.g. rent, salary, utility bills
Variable costs - costs depending on the amount of produce needed e.g. raw materials, wages, stock
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Net Profit Margin
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The difference between the revenue and the total costs
The higher the percentage, the less money has been made
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Gross Profit Margin
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The difference between revenue and the cost of making the product (not including fixed costs such as rent or salary)
The higher the percentage, the less money has been made
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Average Rate of Return
There is a three-step formula to work out the ARR.
First you must calculate the total profit from the investment. You can do this by taking the cost of the investment away from the total income of the investment.
total income - cost of investment
Then you can work out the average annual profit from investment by dividing the total profit by the number of years the business wants to use it.
total profit / number of years
Lastly you must divide the average annual profit from investment by the cost of the investment and times it by one hundred to find the percentage.
average annual profit from investment / cost of investment (x 100)
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