Finance Formulas & Meanings

What does the ending cash formula mean?

Shows how much real cash the business has left; if negative → needs financing

What does contribution margin mean?

Profitability of individual products or services by calculating revenue minus variable costs. It represents the amount of money available to cover fixed costs

What does contribution margin ratio mean?

Percentage of each dollar of revenue that contributes to profit

What does break-even (units) mean?

Number of units needed to make zero profit

What does break-even (revenue) mean?

Total sales dollars needed to break even

What does profit mean?

What remains after all costs are paid

What does revenue mean?

Total sales generated

What do variable costs mean?

Costs that increase as production/sales increase

What does ROI mean?

Percentage return earned on an investment

What does payback period mean?

Time required to recover the initial investment

What does break-even on investment mean?

Units needed to recover an investment

What does net cash flow mean?

Shows whether cash is increasing or decreasing

What does working capital mean?

Cash tied up in daily operations

What does accounts receivable mean?

Money owed by customers (not yet received)

What does inventory mean?

Cash tied up in unsold goods

What does COGS mean?

Direct cost of producing goods/services

What does gross profit mean?

Profit after production costs only

What does operating income mean?

Profit from core business operations

What does net income mean?

Final profit after all expenses