Domain 4 Lesson 2 Quiz

ESB Version 2 Domain 4 Lesson 2

Fixed and Variable Costs

1. Fixed Cost remain the same no matter the volume of production (Rent, Insurance, Property Taxes, Depreciation)

2. Variable Costs fluctuate depending on production and sales (Commissions, credit card fees, wages, supplies)

Analyze Cash Flow

1. Investors and business owners use a cash flow analysis to understand how much a business generates and spends over a period of time

2. Total Cash-Total Costs=Ending Cash Balance

   Example:

   Beginning Cash=$4,700 Cash Sales=$101,000

   Utilities=$3,300 Loans=$2,500 Marketing Costs $5,600

   Total Cash =105,700-Total Costs=11,400

   Ending Cash Balance $94,300

Burn Rate

1. Burn Rate is used to identify the amount of cash a business is spending every month.

2. A measurement of Cash Flow.

   To calculate, subtract the end of the month balance from beg of month balance

   1. Example: Starting Balance $1,900 Ending Balance $2,200 (-300)

Run Rate

1. Run Rate is used to make predictions about future performance of a company. Uses financials from a specific period (usually a month) to predict the company's future performance. 

   1. Example:

      1. Revenue $7,000 x 12 $84,000 is run rate

Return on Investment (ROI) Example

1. Production Cost=$6.75

2. Sells for $10.00 first find net profit 

3. $10.00-6.75=3.25

4. Divide net profit by cost (3.25/6.75)then multiply by 100 to get your percentage

Return on Investment (ROI)

1. Used by businesses to determine how much their investment is earning

2. Gives owners a way to calculate whether their product or service is cost-effective or if they need to make adjustments

3. ROI is calculated using the following calculations. First you need net profit. 

   1. Value of investment-Cost of investment=Net Profit

   2. AND (net profit/cost of investment)x100 =ROI

Return on Investment (ROI)

1. Used by businesses to determine how much their investment is earning

2. Gives owners a way to calculate whether their product or service is cost-effective or if they need to make adjustments

3. ROI is calculated using the following calculations. First you need net profit. 

   1. Value of investment-Cost of investment=Net Profit

   2. AND (net profit/cost of investment)x100 =ROI