Finance / July 8, 2018 / Alicia Franklin
It is important to note that fixed costs are not always the same. Like the price of anything, they can change - sometimes unpredictably and sometimes on a regular schedule, but they do so based on some other factor, not the level of production. For example, if a lease contract is being renegotiated and a $10,000 per month lease payment is increased to $10,500 per month, fixed costs have risen, but not because of production levels.
Although similar, net equity and net assets differ in one important way. Net assets are defined as total assets minus total liabilities – where inventory is included in the company’s assets. Conversely, the net equity value calculation does not include inventory as a part of the business’s assets. Fluctuating inventory will affect a company’s net assets day-to-day, but will not affect the net equity value in the same manner.
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