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ReflectiveJournal on Financial Resource Management
Talking about business model has seemed so far from my ordinary everyday life, and at that time it made me think about only very huge companies, for example: Apple, BMW or else. But after taking Financial Resource Management course my though hasbeen changed, the concepts I studied would be in all kinds and all sizes ofbusiness. No matter what are you doing, you cannot refuse them anyway. Due to my studying coursework and individual assessment, this journal would discuss onthree main ideas: break-even analysis, financial statement analysis, andfinancial techniques for alternative capital investment proposals.
First, I would like to begin witha concept of break-even analysis. Break-even analysis is that we try todetermine a level of sales where revenue equals to costs or in another point ofview it means profit is zero also. So how is it worth for doing business? Yes,of course. To make it easy to more understand I will imagine myself as a coffeeshop owner. Once I open my little shop, the break-even analysis would help mefigure out how many a cup of coffee and a piece of sandwich I have to sell tomy customers to cover all costs that occurs. For in-depth detail, I would liketo tell you via the following equations:
Before I start to talk about theequation, I would like to define each item that conglomerates in it. First, avariable cost is a cost that varies, in total, in direct proportion to changein the level of activity. The activity can be expressed in many ways, such asunits produced, units sold, miles driven, beds occupied, lines of print, hoursworked, and so forth (GARRISON, 2006, p.48-49). The variable costs for the coffeeshop would be coffee beans I used, take-away cups and glasses, ingredients ofdesserts and sandwiches. Second, a fixed cost is a cost that remains constant,in total, regardless of change in the level of activity. Consequently, as theactivity level rises and falls, total fixed costs remain constant unlessinfluenced by some outside force such as a price change (GARRISON, 2006,p.49-50). For our shop, the fixed costs would be rental expense, salaryexpense, depreciation expense and advertising expense.
The above equation shows arelationship of break-even point among total fixed costs, selling price perunit and variable costs per unit. It tells us that the break-even point will belarge number (or difficult for the owner to reach the break-even point), iftotal fixed costs and variable costs are high whereas selling price is low. Incontrast, the break-even point will be small number (or easy for the owner toreach the break-even point), if total fixed costs and variable costs are lowwhereas selling price is high.
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