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Price and total revenue have a negative relationship when demand is elastic (price elasticity > 1), which means that increases in price will lead to decreases in total revenue. Price changes will not affect total revenue when the demand is unit elastic (price elasticity = 1). Maximum total revenue is achieved where the elasticity of demand is 1.
CVP assumes the following: Constant sales price; Constant variable cost per unit;; Constant total fixed cost;; Units sold equal units produced. These are simplifying, largely linearizing assumptions, which are often implicitly assumed in elementary discussions of costs and profits.
The first, short-term ROMI, is also used as a simple index measuring the dollars of revenue (or market share, contribution margin or other desired outputs) for every dollar of marketing spent. For example, if a company spends $100,000 on a direct mail piece and it delivers $500,000 in incremental revenue, then the ROMI factor is 5.0.
The efficiency ratio indicates the expenses as a percentage of revenue (expenses / revenue), with a few variations – it is essentially how much a corporation or individual spends to make a dollar; entities are supposed to attempt minimizing efficiency ratios (reducing expenses and increasing earnings). The concept typically applies to banks.
In other words, this equation allows businesses to determine revenue as well as prepare a statement of retained earnings. This then allows them to predict future profit trends and adjust business practices accordingly. Thus, the accounting equation is an essential step in determining company profitability.
In economics, profit is the difference between revenue that an economic entity has received from its outputs and total costs of its inputs, also known as surplus value. [1] It is equal to total revenue minus total cost, including both explicit and implicit costs. [2]
GDP measures flows rather than stocks (example: the public deficit is a flow, measured per unit of time, while the government debt is a stock, an accumulation). GDP can be expressed equivalently in terms of production or the types of newly produced goods purchased, as per the National Accounting relationship between aggregate spending and income:
Net income is the result of this equation, but revenue typically enjoys equal attention during a standard earnings call. If a company displays solid "top-line growth", analysts could view the period's performance as positive even if earnings growth, or "bottom-line growth" is stagnant.