Managers and entrepreneurs need to have a basic understanding of business finance or their businesses are very unlikely to be successful. This topic introduces you to some important terms and shows you, with a number of examples, how managers can calculate their business's costs, decide whether an investment is worthwhile and determine whether it will make a profit or a loss.
Businesses need assets such as buildings, machinery and vehicles to produce goods and services. They buy these assets to use in producing goods and services and in the hope of making a profit.
A business can only make a profit when its sales revenue is greater than its costs. If revenue is less than costs, the firm will make a loss. Break-even is a level of production or output at which revenue from sales equals the total costs of production. In this situation, a business will not make a loss or a profit.
Businesses' total costs of production are made up of fixed costs and variable costs.
