Gross Working Capital: Gross Working Capital represents – Sum total of current assets invested in the business. Current assets represent those assets that can be converted into cash within a very short period, generally within one year. The components of Working Capital are as follows:
Concept of Working Capital: Capital required for a business enterprise can be classified under two main categories i.e. a) Fixed Capital and b) Working Capital Every business enterprises require long-term funds to create productions facilities through the purchase of Fixed Assets i.e.., Land, Buildings, Machinery, Furniture, etc. Investment in these assets indicates the Fixed Capital, … Read more
Break Even Chart: It shows the BEP and indicates the estimated profit or loss at various output levels. The break-even point as indicated in the following graph is the point at which total cost and sales lines intersect. Example Determine graphically (a) the Break-even point and (b) the Profit if the output is 25,000 units. … Read more
Break-Even Analysis: It refers to a technique of determining the level of operations where total revenues equal total expenses i.e. the point of no profit no less. Computation of Break-Even Point $$Sales\;revenue\;at\;B.E.\;P.\;=\;F\;+\;V$$ a) Break-even Point in Units: $$B.E.P.(UNITS)\;=\frac{\;(Fixed\;\cos t)}{(Selling\;Price\;per\;unit\;-\;Variable\;\cos t\;per\;unit)}$$ $$or,\;B.E.P.(UNITS)\;=\;\frac F{(Contribution\;per\;unit)}$$ BEP in terms of Money $$S\;=\;F\;+\;V$$ $$or,\;S\;-\;V=F$$ $$or,\;\frac{(S-V)}V\;\;=\;\;\frac F{(S-V)}$$ $$or,\;1\;=\;\frac F{(S-V)}$$ $$or,\;S\;=\;\frac{(F\times S)}{(S-V)}$$ … Read more
Cost Volume Profit Analysis: A method for analyzing the link between COST, Volume, and Profit is called Cost Volume Profit analysis. The profit of an undertaking depends upon a large number of factors. But the most important of these factors is the COST of the manufacturer, the volume of sales, and the selling prices of … Read more
Significance: The ratio reveals in percentage how much of sales is available for recouping fixed costs and higher the sustaining capacity of the firm to stay in the competitive market. It assists in determining the volume of production required for earning desired profit. This is why management aims to enhance the ratio. The following method … Read more
