money used by a company, provided by the shareholders or
to provide money to pay for something
the study of how money is managed and the actual process
of acquiring needed funds.
the management of large amounts of money, especially by
governments or large companies
A firm’s use of assets & liabilities using fixed costs in an
attempt to rise potential returns to shareholders
use of assets consuming fixed costs. The use of fixed
operating costs by the firm.
use of liabilities & preferred stock consuming fixed costs.
The use of fixed financing costs by the firm.
The British expression is gearing.
Costs of sales
General admin, & selling expenses
Costs that change in close relationship to variations in sales are
named as variable costs. changes in total in proportion to
changes in the related level of volume. on a per-unit basis
variable cost remain constant.
Cost is a resource sacrificed or
forgone achieve specific objective.
is the cost incurred (a historical
as distinguished from budgeted
a cost that has occurred
persist unchanged in total
irrespective of changes in the
related level of volume. with
the level of production it change
specifically with a
particular final cost
objective i.e., a particular
award, service or direct
for common or
joint objectives and cannot
be readily identified with a
particular final cost
Cannot be easily
The percentage change in a firm’s earnings per share
(EPS) resulting from a 1 present change in operating
= Earnings before interest and taxes
= Preferred dividends
= Corporate tax rate
EBIT + FC
DTL S dollars
DTL Q units
= EBIT - I - [ PD / (1 - t) ]
Q (P - V)
Q (P - V) - FC - I - [ PD / (1 - t) ]
determine the level of sales a firm must achieve to stay
in business in the long run
Shows the mix of fixed and variable cost and the
volume required for zero profit/loss
Profit/loss generally measured by EBIT (operating
Using an algebraic calculation as a formula for earnings
before interest and taxes yields:
EBIT = (P x Q) – FC – (VC x Q)
EBIT = Q x (P – VC) – FC
Setting EBIT equal to $0 and solving for Q (the firm’s
breakeven point) yields:
Every sale makes a ‘contribution’ per unit of the
difference between price (P) and variable cost (V)
Ct = P – V
Can be expressed as a percentage of the price
Known as the contribution margin (CM)
CM = (P – V) / P
EBIT-EPS Break-Even Analysis -- Analysis of the
effect of financing alternatives on earnings per share.
The break-even point is the EBIT level where EPS is
the same for two (or more) alternatives.
- I) (1 - t) - Pref. Div.
# of Common Shares
results from the usage of fixed costs to expand
returns to firm’s owners. the mixture of debt and equity,
affects leverage and value of firm. to measure total
operating costs & level of sales Breakeven analysis is