M8: Liabilities. A=L+OE Liabilities—all probable & estimable AP—Suppliers, AP Turnover (CGS/avg AP), Leaning on the Trade Accrued—Employees, interest, warranties… Possible INCOME misstatements (ethics) Big Bath. Financial Obligations Notes Payable—often from banks Bonds Payable—covenants
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CVP is used to determine for a given volume the costs, revenues, and profits
Assumptions: Fixed/Variable costs (linear), relevant range, constant mix or single product, single volume measure
Difference in income statements used:
Before Taxes: After Tax/(1-Tax Rate)
Operating Leverage: CM/IBT
Margin of Safety Ratio: (EV-BE)/EV