Financial terms and calculations key terms

Total cost

The sum of all fixed and variable costs incurred by a business to produce a given level of output.

Profit

The amount remaining after all costs have been deducted from revenue; it represents the business's earnings.

Average Rate of Return

The percentage of the initial investment that is recovered as net cash inflow over the life of the investment.

Average rate of return

The percentage of profit earned on an investment relative to the initial cost of that investment, calculated as (Net profit ÷ Initial investment) × 100.

break-even output

The quantity of units that a business must produce and sell so that its total revenue equals its total costs, leaving no profit or loss.

break-even chart

A graphical representation that plots total cost and total revenue against units sold, showing the point where the two lines intersect as the break-even point.

break-even point

The level of output where total revenue equals total cost, resulting in zero profit.

Break-even analysis

A financial assessment that calculates the sales volume or revenue required for a business to cover all its costs, resulting in zero profit.