Buy low. Sell high. That’s all you need to know about business finance.
Actually, there’s more to it than that. But “buy low, sell high” is a good place to start. Why? Because businesses exist to create value for their owners, and they do this by selling goods or services at a higher price than the cost of producing or acquiring them.
When a company sells something, it brings in revenue. When a company buys the resources needed to make something, it incurs costs. The difference between the two is profit.
When a company’s revenue is greater than its costs, it makes profits. When its costs are greater than its revenue, it has losses.
So far, so simple. The rest of this chapter will cover basic material like this. If it’s too basic for you, feel free to skim it and check your knowledge in the Exercises.
At the end of the chapter, you will solve a business case study in which you apply what you learn in this chapter. You will help Leary Organics, a maker of organic cereal foods, decide how to replace their oldest grain mill. First, view the background about Leary Organics and their business problem.