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FINANCIAL TERMS AND CALCULATIONS

Financial terms and calculations includes revenue, costs, profits and loss,
average rate of return, and break-even. These financial elements inform key
decisions in every business.

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Business
Finance
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BASIC FINANCIAL CALCULATIONS

Mo and Emma work out revenue, profit and loss


REVENUE

Revenue is any money that a business makes from selling their products and
services, whereas costs are anything that a business pays for. Businesses need
revenue to ensure that they can maintain their day to day operations and pay and
business costs they have.

Example of revenue for a florist shop:

 * selling flowers
 * charges for delivering to customers

Examples of revenue for a web designer:

 * fee for designing a website
 * fee for maintaining or updating a website

Revenue is worked out using a relatively simply calculation:

Revenue = selling price × quantity sold

If a florist sold 482 bouquets of flowers for £10 each, their revenue would be
£4,820:

Revenue = £10 × 482 = £4,820

If a web designer charged £256 to design a website and in a year designed 25
websites, their overall revenue would be £6,400:

Revenue = £256 × 25 = £6,400


PROFIT AND LOSS

Many businesses measure their success based on how much of a profit or loss they
have made. Profit is any revenue left after all business costs have been paid.

Profit is calculated using the following calculation:

Profit = revenue – total costs

Where a business’ costs are higher than the revenue it has made, this
calculation gives a negative number, which would be classed as a loss.
Businesses would never aim to make a loss, and businesses making consistent
losses may eventually fail.

For example if a business has revenue of £50,000 and total costs of £41,000,
they will have an overall profit of £9,000:

Profit = £50,000 - £41,000 = £9,000

If a business has a revenue of £30,000 and total costs of £45,000, they will
have an overall loss of £15,000:

Profit = £30,000 - £45,000 = -£15,000


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MORE GUIDES

 1. Sources of Finance - AQA
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 2. Business growth - AQA
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 3. Cash and cash flow - AQA
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 4. Financial terms and calculations - AQA
 5. Analysing the financial performance of a business - AQA
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