More Finance Terms Defined
1.Capitalization: This describes the way the company has funded its fixed assets.2.Depreciation: The fixed assets used in company operations have significant tax advantages for the company as well.
3.Amortization: This term describes how some purchases (or leases) can be posted to the company’s books on a periodic basis over time, rather than as a one-time expense.
4.The modified accelerated cost recovery system (MACRS): This is the generally accepted method for determining how much of a given asset’s value can be written off each year.
5.Marginal cost: Every additional product produced or service provided incurs an additional variable cost to the company.
6.Gross profit: The company generates a gross profit on every unit of output that sells to a customer.
7.Gross margin: The previously calculated gross profit is then also expressed as a percentage relative to the selling price.
8.Burn rate: Every company has a fixed amount of overhead costs that has to be paid every month, regardless of the level of sales activity.
9.Break-even point: This is the point in the annual output where the number of units sold, or number of services provided, produces enough gross profit to cover all the fixed overhead costs of operations.
10.Volume: This refers to the quantity of units of output the company sells, or the number of times its services are provided to customers.
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