Business Risk Ratios - How to Calculate Business Risk
All firms face business risk or the risk that sales will decline and income will decline along with sales. Here are some financial ratios that business owners can use to measure their business risk.
How to do Cost-Volume-Profit Analysis - An Introduction
Cost-volume-profit analysis is one of the major tools of financial analysis. Financial managers use the contribution margin to do profit planning for the business firm. Here are some articles that will help you, as a business owner, in planning for profit.
What is Leverage?
Business and financial risk refer to the amount of leverage a business firm employs. Operating leverage is the use of fixed assets to increase returns. Financial leverage is the use of debt financing to increase returns. Combined leverage is the total risk to the firm of these two types of leverage.
What is pricing?
Before discussing types of pricing strategies a business owner can use, it is useful to go back and answer the question of what is pricing.
Pricing your Product Using Markup
Pricing your product or service using markup is one popular pricing strategy. Pricing your product correctly can mean the success or failure of your business. Product markup as a pricing strategy is the basis of many pricing strategies.
Fixed and Variable Costs
There are two types of costs or expenses in a small business firm. They are fixed and variable costs. Variable costs change as sales change. Fixed costs do not change with sales volume.
How to Calculate Breakeven Point
Learning how to calculate breakeven point helps a business owner make decisions about fixed costs, variable costs, and the price of the product as they relate to the firm's profit potential.
What is the most difficult variable to estimate in breakeven analysis?
Breakeven analysis involves three variables - fixed costs, variable costs, and price. Which variable is the most difficult to estimate?
Direct and Indirect Costs and Their Effect on Pricing your Product
Part of the process of pricing your product is including the costs of producing that product. These costs are called direct and indirect costs.
What is the Contribution Margin?
A business firm's contribution margin is the amount of money it has to cover its fixed costs and contribute to its net profit or loss after paying all its variable costs. Here is the analysis.
Contribution Margin Income Statement at the Breakeven Point in Dollars
Here is an example of a contribution margin income statement illustrating break-even in dollars.
Contribution Margin Ratio
The contribution margin ratio helps the firm determine the profit potential of additional sales.
Gross Margin vs Contribution Margin
There are two reasons that gross margin, or gross profit margin, is different from contribution margin for a company.
Pricing Strategies: Calculation of Prices Based on Markup of Selling Price
One method of pricing a product is to use the markup pricing based on selling costs.
definition of cost-plus pricing