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Showing posts with the label contribution margin

Financial Intelligence: Replace your Financial Statements with Contribution Margin Statements

(Watch our short video at here ) Having looked at financial intelligence for an individual, today we look at financial intelligence for businesses. I will tell you to throw away your financial statements as they are not useful! Traditional financial statements will show you the profit and loss statement as follows: Sales Less cost of sales = Gross Profit Less expenses = Net Profit The question I want to throw to you is: is this your real profit?  How do you make decisions based on this information? We know that businessmen do not rely on the above financial statements to make decisions because they lack an important information.  They do not give you information on your costs. There are two types of costs: fixed and variable. Fixed costs do not vary with operations level, like your rental or staff salaries, they are the same regardless of your sales.  Variable costs vary with your operations level, like your selling costs and cost of purchase.  You need to break down