2. Learning Objectives
• Identify financial and nonfinancial objectives of a business
• Explain different methods of
measuring business success
• Define and calculate revenue,
costs and profits.
3. What do the following large
organisations want to achieve?
4. Anything that a business
wants to achieve e.g.
maximise profit
5. ESF Pizzeria
• Imagine that you are setting up
your own pizza delivery business
What Objectives
might you want to
achieve in setting
up/running this
business?
10. Measuring Success
Businesses measure their success
against their business objectives.
As ESF Pizzeria’s owner one of your
financial objectives will be to make
profit.
Profit is the main way of measuring the
success of Henan Pizzeria but there
are other ways it can be measured.
11. Methods of Measuring Success
Job Security
Positive Cash Flow
Market Share
Job Creation
Employees want to know they are not
going to lose their jobs. This helps them
plan for the future and motivates them
to work hard.
The money flowing into the business is
greater than money flowing out.
Suppliers and workers will be paid on
time.
How much of the market a firm has compared to
its competitors. It shows the businesses market
power and how successful it is compared to its
competitors.
Providing more employment to people. This
creates wealth in the economy and helps
raise the standard of living.
12. Revenue
• Revenue is the amount of money a
business will receive from selling a
product over a period of time like a
day, week or year.
• Revenues can also be called sales
revenue, turnover or sales turnover.
To predict total revenues, a business has
to predict how much it will sell (sales
volume) and what the average price
charged per sale will be.
13. Total Revenue
Total revenue = Price x Quantity
or
TR = P X Q
For ESF Pizzeria this is:
£14.25 x 20,000 (pizzas)
= £285,000 for the year
14. Costs
• All businesses will have a
number of different costs
associated with running their
business.
• With your partner
list possible costs
For ESF Pizzeria
15. There are 2 types of cost
1. The costs that will remain the
same – no matter how many
pizzas you make
2.Costs that will go up or down
depending on the number of
pizzas you make
16. Circle the ones you think will stay
the same
•
•
•
•
•
Advertising costs
Administration costs
Insurance
Pizza Toppings
Rent
•
•
•
•
•
Business rates
Salaries
Flour
Pizza Boxes
Wages for casual
staff
17. Fixed Costs
•FIXED COSTS are costs which do not
change with the output produced or the
services provided. Such as:
•Rent
•Business rates
•Advertising costs
•Administration costs
•Salaries
•Insurance
•Fixed costs will remain the same and have to
be paid regardless of whether the business is
busy or not; and how much it makes and sells.
18. Variable Costs
• VARIABLE COSTS are costs which change directly
with the level of production or service provided
such as:
•
•
•
•
Flour
Pizza Toppings
Pizza Boxes
Wages for casual staff
• With variable costs, the more that is produced or
provided, the higher the variable costs will be.
Also, if a business does nothing, the variable costs
will be zero.
19. Total Costs
Total costs = Fixed costs + Variable
costs
or
TC = FC + VC
For Henan Pizzeria this is:
£240,000 per year
20. Profit
• To work out the profit for Vandyke
Pizzeria, you must calculate the
difference between total revenue and
total costs.
Profit/loss = Total revenue – Total
Costs
This would be:
£285,000 - £240,000 = £45,000 profit
What happens if costs were £300,000?
21. Break Even
• We may not sell 20,000 pizzas a
year! It could be a lot less!
• Break Even (B.E.P.) = the level
of sales a business needs to
cover their total costs. At this
point total costs = total
revenue and neither a profit nor
a loss is made.
22. Learning Objectives
• Identify financial and nonfinancial objectives of a business
• Explain different methods of
measuring business success
• Define and calculate revenue,
costs and profits.
