Common Terms of Business

Opportunity costs are an economic concept to quantify benefits of (discarded) alternatives. They measure the lost benefits that occur if you choose the best alternative instead of the second best one.

Use the concept of economies of scale and economies of scope to uncover potential areas for growth and profitability improvement in your consulting Case Interview

Use the Net Present Value (NPV) to compare investments with different volatile cash-flows over time and quantitatively assess their attractiveness.

A balance sheet, also known as financial position statement, depicts the financial balance in terms of assets and liabilities/ equity. It can be seen as a snapshot of the company’s financial situation at a specific point in time.

The income statement, also known as profit and loss statement, is a summary of the revenue and costs over the last year. Costs are subtracted from revenue and as a result, either positive or negative net income is generated. The income statement belongs to the three financial statements together with the balance sheet and cash flow statement.

The cash flow statement belongs to the three financial statements besides the balance sheet and income statement. It depicts the inflow/ outflow of cash or cash equivalent.

The concept of supply and demand, along with the relation to price, is one of the most basic concepts in economy. It states that prices will shift until an equilibrium price is reached, where supply and demand of a good match perfectly.

Costs are segmented into fixed and variable costs, since these differ significantly with respect to dependency on activity and time-wise adaptability.

The Compounded Annual Growth Rate (CAGR) Is a theoretical steady growth rate over a specific amount of time, not the average of the Y-o-Y growth rates. It can mask sub-trends within the period