What is CMR? Calculating the minimum potential revenue, or alternatively, the minimum guaranteed revenue, is an important part of finance and accounting. This is a simple calculation used to determine the amount of capital expenditure required for a venture. In essence, this calculation determines the amount of money that a venture can get, or its market share, as well as break-through profit. It is indeed a very important number in the business world!
To conclude, what is a ratio is a simple yet essential number. Using this calculation, one can come to a better understanding of his or her business and help make wise investment decisions. There are many ways on how this number is determined. The break-even point is one such way, the difference between the actual cost of the venture, and the potential market share obtained after a year of operation.
A company’s net worth, minus the net cost incurred, are then used as the target profit. It is after this that the break even point is determined. It is after this that a company decides whether or not to use its variable costs, and use its earnings instead. The end result is, the difference between actual cost and potential profit or loss is measured using what is a ratio.
So what is a ratio? It measures the profitability of a venture by calculating the potential revenue (the excess net operating income over the invested capital), the potential market share obtained after a certain period of time, and the average variable cost per unit over the relevant range of prices. The important thing to note in this regard is that the profit or loss figure is determined using the relevant range of prices. The fact that the relevant range is determined using this method, implies that the figure can be compared across different price ranges.
The factors that are used in determining what is a ratio include total sales revenue, variable costs, and fixed costs. The total sales revenue is calculated as the gross value of the product sold less the cost of good sold. It then becomes necessary to include the factor of profit or loss into the equation. Variable costs are those recurring costs that affect the production of a particular venture. It includes the salaries and wages of the workers, the raw materials used, and other similar factors. Finally, fixed costs refers to the overhead that a particular enterprise incurs, such as electricity, rent, buildings, and the like.
The output of the cm per unit analysis is then divided into three categories; revenues from sales, costs from fixed costs, and revenues from variable costs. When revenues from sales are added on to variable costs, the end result is the net profits at a constant price. Fixed costs, however, include the investment necessary for the operation of the enterprise. These include the capital cost of purchasing the building and the personnel who will operate in it, as well as the cost of the land on which the enterprise operates.
The third column in what is a ratio refers to the percentage of profits that are generated by the firms in relation to the total cost of production. In this way, enterprises are evaluated according to their relative ability to make profits. In order to do this, the percentage of sales that comes from a firm is compared with the percentage of its total production that is generated by variable costs. The higher the two percentages, the better the performance of the enterprise. A higher c-v-p, on the other hand, indicates a better performance by a firm on the whole.
How is a c-v-p determined? The concept behind what is a ratio is not very difficult to understand. Basically, the more sales that a firm can generate at a specific price level without incurring any loss, the better the enterprise is rated. The best way to achieve this is through the use of a break-even point or a means to determine the maximum or minimum prices that a firm will be able to sell products at during any particular period of time. By using the concept of multiples of profit, enterprises can determine their average c-v-p across different variables such as the type of products they offer, the price they charge for those products, the number of stores they have and their geographic locations. Through this, they can easily estimate their cm ratios across the different variables and arrive at a universal value representing the profitability of their enterprise.