Finance / August 5, 2018 / Parker Hardy
Fixed costs can be assets like buildings and equipment. For example, a beverage company that bottles water is going to need a physical building and an assembly line that includes specialized equipment. If we assume the building and equipment are leased, there is a monthly payment for each of them. The company is responsible for paying 100% of the monthly payments, whether they produce one case of bottled water or 10,000 cases of bottled water.
To get an accurate estimate of what your business is worth on the market, you may use a number of such business valuation formula multiples and determine the business value in relation to its revenues, profits, or assets.
Both of these measurements are key concepts for management in any industry. Retailers can use it to see how much product they must sell to meet their minimum costs. Manufacturers can calculate the amount of product that must be produced and sold during a period.
Depreciation, i.e. a decrease in an asset's value, may be caused by a number of other factors as well such as unfavorable market conditions, etc. Machinery, equipment, currency are some examples of assets that are likely to depreciate over a specific period of time. Opposite of depreciation is appreciation which is increase in the value of an asset over a period of time.
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