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Finance, Profit = Revenue - Cost, Definitions - Coggle Diagram

- - - - reducing current liabilities
      - improving the business' credit control system
      - sale of unused fixed assets
      - negotiate longer term payment terms with suppliers
      - decrease overheads
      - cash drain
    - - increasing sales
      - reduce current liabilities
      - reduce drawings
      - sale of unused assets
  - - - Net profit margin=Net profit before interest and taxSales revenue×100
        
        Possible strategies to improve the NPM
        Lower the cost of goods sold
        Reduce operating expenses
        Increase sales revenue
        
        Returen on capital employed= (ROCE) A.K.A EFFICIENCY RATO.
        calculates how able a company is to generate return from its capital
- - - - The payback period calculates the length of time that it takes for a capital investment to pay for itself, using the annual net cash flows provided by that investment.
        
        Net cash flow = Cash inflows - Cash outflows
        
        Benefits :
        Easy to calculate
        Payback period in important for companies that suffer from cash flow problems. This may include small business such as sole traders or those trying to survive a recession.
        
        Limitations:
        It ignores long term profitability
- - - - Short-term finance
        
        all internal finance (depends on size)
        
        over drafts, trade credit debt factoring, subsidies,
      - Medium-term finance
        
        all internal finance (depends on size)
        
        loan capital, leasing subsidies
      - Long-term finance
        
        all internal finance (depends on size)
        
        share capital, venture capital, business angels , loan capitals, grants
- - - - Measures the number of times on average that a firm sells and replenishes it's stock. Or, the rate at which a firm uses it's stock in a case of manufacturing enterprise usually within a year.
      - The more frequently stock is 'turned over' the mor efficient the firm is in converting the stock
      - the more frequently stock is 'turned over' the more efficient the firm is in converting the stock into sales and most probably profit.
      - Average inventory = Beginning inventory + ending inventory / 2
      - It is important to note that businesses in different industries have different stock turnover ratios; for example, supermarkets have fast-moving stock and thus a higher stock turnover ratio, while businesses that sell carpets or cars have slow-moving stock, with a low stock turnover ratio.
    - - Lower prices: help to increase demand, its impact on firms' revenue depends on the price elasticity of demand, as lowering prices for price-inelastic goods will result in a fall in sales revenue. lower prices could also be possible through negotiations for better prices with suppliers
      - Increased promotion: help to move stock and increase sales. However, Increased advertising could be costly and negatively impact the firm's overall profitability.
      - Stocking only fast-selling items: buyers have to be more selective and stock only goods that are in high demand, such as necessities and the more fashionable items. help to increase the rate of sales.
      - Just-in-time stock method: For manufacturing firms, stock could be ordered just-in-time as required for the production process. While this ensures that the there will be no excess stock and therefore minimal storage costs, sudden surges in demand for the product and the inability of suppliers to respond quickly could result in dissatisfied customers and loss of potential profits for the firm.
      - Better sales forecasting: An analysis of the firm's sales trends and better sales forecasting methods will help the firm to be more accurate with its stock levels and therefore its faster movement. However, sales forecasts could be affected by unforeseen events, such as a sudden increase or fall in sales due to factors beyond the firm's control, such as natural disasters or political changes.
    - - The debtor days ratio indicates the average number of days it takes the company to collect its debts
      - Debtor days = Debtors / Total sales revenue × 365
      - Debtor days = $17m / $200m × 365 = 31 days.
    - - More effective credit control
- - - - copy rights
      - brand
- - - - variable: A little bit of extra electricity will be needed to power the espresso machine and make an additional cup of coffee.
      - Fixed: be used to power the lights and keep the fridges cool and these do not vary with output