Budget and Budgetary Control: Meaning of a Budget A budget is the financial or/and quantitative expression of the business strategies and policies that will be implemented over the coming years. The term budgeting is used for preparing budgets and other procedures for planning, coordination and control of the business enterprise. Budgetary Control Budgetary control is…

## Define Net Working Capital.

Net Working Capital: Net working capital represents the excess of Current Assets over current liabilities. When the total value of current assets exceeds the total value of current liabilities, the result represents positive working capital. On the other hand, if current liabilities exceed current assets, the result represents negative working capital. Current liability includes those…

## Define Gross Working Capital.

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:

## Define Working Capital Management.

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,…

## Define Break Even Chart.

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….

## Define Break-Even Analysis.

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 $$S\;=\;F\;+\;V$$ $$or,\;S\;-\;V=F$$ $$or,\;\frac{(S-V)}V\;\;=\;\;\frac F{(S-V)}$$ $$or,\;1\;=\;\frac F{(S-V)}$$ $$or,\;S\;=\;\frac{(F\times S)}{(S-V)}$$…

## Define Cost Volume Profit Analysis.

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…

## What is the Significance of Financial Management?

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…

## Define Profit/Volume Ratio (P/V-Ratio or C/S Ratio).

Profit/Volume Ratio (P/V-Ratio or C/S Ratio): The Profit/Volume ratio, which is also called the “Contribution ratio” or marginal ratio, expresses the relation of contribution to sales and be expressed in the following manner – $$\frac PV\;ratio\;=\;\frac{Contribution}{Sales}\;or\;\frac CS$$ $$or,\;\frac PV\;ratio\;=\;\frac{S-V}S$$ $$or,\;\frac PV\;Ratio\;=\;\frac{\;(F\pm P)}S$$ $$or,\;\frac PV\;Ratio\;=\;\frac{(Change\;in\;Profit\;or\;Contribution)}{(Change\;in\;Sales)}$$

## Define Contribution.

Contribution: Contribution is the difference between sales and variable costs or marginal costs. It also may be defined as the difference between the selling price per unit and the over-variable cost per unit. If the selling price of a product is Rs.100/- per unit and variable cost per unit is Rs.80/-, contribution per unit is…