Paper Example on Variable Cost and Fixed Cost: Explained

Introduction

Variable cost is the production cost incurred by the company. The rate at which variable cost changes depends on the production volume. They increase and decrease depending on production. Example the cost incurred by a vehicle manufacturing company to manufacture a car. While fixed cost remains the same with or without production. Fixed cost is associated with time, like payments of employee's salaries after maybe one month of service. Some common examples include insurance, rent, lease payment.

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Roles of Top Management

Their primary duty is to focus on positioning the company at the top level in the market through their long term strategic planning. They make the most vital decisions that determine the direction of the organization. They are also involved in corporate social responsibilities.

Importance of Questions asked by Investors before Purchasing Stock

The investor should be aware of the goals He or She wants to achieve. The time required to achieve the target is significant. Every investor will consider purchasing the stock that brings more profit within the shortest time possible. The risk involved in buying that stock if everything does not go as planned. Entrepreneurs are risk takers, but no one will like to associate in a losing business.

Initial Public Offering

IPO this is the first sale a company makes to the on the public. Growing firms will use prefer using IPOs to raise funds. Example of IPO announced by Facebook in 2012.

Reasons for Paying and not Paying Dividends

Many corporations like the consistency income associated with the dividends. Investors see paying dividends as a measure of strength to the company. It also shows that management as positive income expectations in the future. The choice of not paying is more beneficial from the tax aspects. The amount of money to be used in paying dividends can be used by the company to start a new project. The decision to begin paying, to increase or reduce the existing ones is a strategic decision that needs time and money.

The Rule of 72

States that the compound return is divided into 72 to find the number of years you need to double your money at a given interest rate. It is done by dividing 72 by the annual rate of return. It provides a rough estimation of the time the investment will take to repay itself.

Inflation Losses

Savings should grow at the same rate with inflation else you end up losing money effectively. The value of savings may reduce due to changes over time. Investing has better returns compared to savings. Inflation occurs when demand for goods and services grows. When the market is high, the supply is low, and sellers tend to hike prices.

Borrowing vs. Equity Offering

Equity offering is a better idea, and corporation compensates its employees and advisors with stock rather than offering cash. Hence, saving money to spend on other expenses. When considering borrowing be assured of refund.

Differentiate between Income Statement and Balance Sheet

The balance sheet is a financial statement giving details of assets, liabilities, and owner's equity. While income statements provide details about companies' income and expenses over some time.

Bankruptcy

Timely cash flow is necessary, and in a situation where the business is not in a position to cater for its expenses, investors must finance its growth. Employers should be able to pay salaries on time and other costs as well.