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Stepped (semi-fixed) costs

Stepped costs (also known as step cost) or semi-fixed costs are fixed costs which become variable after the production reaches certain level of output. In other words, different fixed rates are valid within different production ranges. An example can be rent of production premises. If the volu

Indirect costs (overheads)

Indirect costs are costs not directly and clearly identifiable with cost object (usually product or service). Together with direct (prime) costs they form total costs of the entity. Indirect costs can be both fixed and variable, production and non-production or external and internal. They are oft

EBIT / PBIT

EBIT (PBIT) is the total profit/loss without: interest expense (i.e. cost of debt) income tax possibly also profit/loss from discontinued operations (defined in IFRS, other GAAPs may not use this concept)   EBIT usually also includes so-called Non-operating result, which is the result o

Gross margin

Gross margin is one of profitability indicators.   It can be expressed as a difference   %   Comparisons gross margin % will vary considerably between industries, so comparing companies in different industries makes little sense it makes sense to compare with the

Variable costs

Variable costs are costs that change with the production volume. If the level of production decreases, total variable costs decrease as well and vice versa.  But unit variable costs remain unchanged with the changed production volume. Opposite to variable costs are fixed costs.   Behavi

Progressive costs

Progressive (over-proportionate) costs are costs that increase more quickly when the production level increases. They are most often related to variable costs which can be linear (proportionate), progressive or degressive. If they are progressive and production increases, unit costs increase. C

Semi-variable costs / Mixed costs

Semi-variable costs or mixed costs are costs that have both fixed and variable components.  They are variable until certain production level, then increase in step and after that grow variably again. (58) They include for example costs with a standing (fixed) fee and a variable comp

Difference between profit and cash-flow

Profit is usually not equal to cash flow because profit is defined as the difference between income and expenses, while cash flow as the difference between receipts and expenditures. Accounting profit is the final line in the income statement, while cash flow is the final line in the statement of c

Internal rate of return (IRR)

Internal rate of return is method used for investment appraisal that calculates the rate of return that is expected to be achieved by the project. IRR is related with NPV method as it is the discount rate at which NPV is zero. if IRR > target rate (often WACC) → the investment adds value

Difference between expense and expenditure

Expense is not the same term as expenditure as well as income is not the same as receipt.   Expenditures (and receipts) are associated with cash movements and as such affect the entity´s cash flow. Expenses represent consumption of inputs (material, labor etc.) in order to generate re

Fixed costs

Fixed costs are costs that do not relatively change with the level production over the short term and are incurred even if there is no production. So if the level of production decreases, fixed costs remain unchanged and fixed cost per unit increases, and vice versa. Examples: CFO salary; rent

Cash ratio / Absolute liquidity ratio

Cash ratio (Absolute liquidity ratio) is one of liquidity indicators which informs us about how many times the firm would be able to pay its current liabilities, if it converts its financial assets to cash. The indicator has only the most liquid component in the numerator - (short-term) financ

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