All calculations Flashcards
What is the formula for market share?
(sales of a business / Total sales in the market) * 100
What is Price Elasticity of Demand (PED)?
It indicates to firms how much demand will change when the price changes
What is the equation of Price Elasticity of Demand (PED) and how do you know if PED is elastic or inelastic?
(% Change in Demand) / (% Change in Price)
PED < 1 = Inelastic
PED > 1 = Elastic
What is the equation of Income Elasticity of Demand (YED) and how do you know if YED is elastic or inelastic?
(% Change in Demand) / (% Change in Income)
PED <= 1 = Inelastic
PED >= 1 = Elastic
Negative = Normal Good Positive = Inferior Good
What factors effect the PED?
Time (Customers Substitute) -
Competition -
Branding -
What factors effect the YED?
- If the good is a necessity
- If its a luxury good
What is Income Elasticity of Demand (YED)?
It indicates to firms how much demand will change when income changes
What is the formula for Break-even?
Fixed Cost / (SP - VC)
What is the Break-even point?
Where total revenue = total cost
What is the Margin of Safety?
Its the difference between the break-even point and the current level of output.
What are the limitations of the Break-even point?
- Assumes all stock is sold
- Costs are rarely constant
- Inefficient when multiple products are involved
What are the benefits of the Break-even point?
- Simple and easy to use
- Can help with decision making
- Can be used to analyse the potential impact of changing prices and costs
What is the formula for contribution?
Selling price - Variable price per unit
What is productivity?
The relationship between input and outputs in the economy.
What is the formula for labour productivity?
Output/ No. of employees
What is the formula for capital productivity?
Output/ capital Employed
What is capital utilisation?
The use that a business makes of its resources
What is the formula for capacity utilisation?
(Current output / maximum Possible Output) * 100
What are the advantages and disadvantages of under-utilisation?
+Allows the business to cope with sudden increase in demand
+Workers won’t be over worked
- Fixed costs can be high
- Business won’t be making the most of its resources
- Workers may feel insecure in their jobs
What are the advantages and disadvantages of over-utilisation?
+Lower average costs
+Staff may feel they have a secure job
+Potential opportunities for overtime
- Over worked workforce
- Unable to respond to increased demand
- May not have free time (FST)
What are the ways of improving capacity utilisation?
Increased sales
Increased usage
Outsourcing
Redeployment- employees getting new job roles in the same company
How to calculate a moving average?
Add the last ‘n’ number of months then divide it by ‘n’. To calculate the next period move across one and repeat.
What are the 3 financial methods for investment appraisal?
- Payback: The time taken to recoup the initial investment and consider the cash inflows over a number of years.
- Average rate of return: Measures the profit achieved on an investment over time
- Net present value: Measures the future value of money by discounting cash inflows
What is payback period?
The time it takes for a project to repay its initial investment
What are + and - of Payback period?
+Simple and easy to calculate & easy to understand the results
+Focuses on cash flows ( good for businesses where cash is scarce)
+Easy to compare with other projects
- Doesn’t look at the overall project return
- May encourage short term thinking
- Ignores qualitative aspects
- Doesn’t actually create a decision for the business
What is Average (Accounting) Rate of Return and the formula?
A methods that measures the net return each year as a percentage of the capital cost of the investment
ARR(%) = ( Net Return (Profit) pa / Capital Outlay (Cost) ) * 100
What is Investment Appraisal and the 3 methods?
A series of techniques designed to assist businesses in judging the desirability of investing in particular projects
- Payback period
- Average Rate of Return
- Discounted Cash Flow
What are the + and - of using the ARR method?
+Shows clearly the profitability of an investment
+Easy to compare
+Easier to identify opportunity cost of investments
-Ignores the effects of time on the value of money
What are the + and - of the Discounted Cash-Flow method?
+Considers the value of money over time
+
- Complex to calculate
- If the rate of discount is high, it may seem that no project will ever be profitable
What is discounted Cash Flow (Net Present Value)?
Understanding what profit/ cash inflows in the the future is worth at its present value.
Why is Critical Path Analysis important?
Efficiency - it shows the tasks that can take place concurrently and highlights those which are crucial to prevent an overall delay
Ensures deadlines are met to save costs and protect reputation. Penalty clauses are often written into contracts for projects. Bonuses can be awarded for meeting/beating deadlines.
It sets targets and minimises time spent on each task. Experience will help a business calculate the time needed for each task.
Working capital control - identifying when resources will be needed so capital isn’t tied up in raw materials and equipment eg hiring a digger or buying bricks. JIT.
What are the limitations of using critical path analysis?
- Difficult to estimate the completion of an activity
- Can be difficult when it comes to bigger projects
What is the equation for labour productivity?
Output per period / Number of employers per period
What are the advantages and disadvantages of having a good labour productivity?
+Drives down costs
+increases competitiveness - business can charge lower prices
+Makes better use of capital resource -
+Makes optimum use of Human Resources -
-May Compromise on quality
What is the formula for labour turn over?
( Staff leaving per year / Average number of staff ) * 100
What might cause labour turnover?
Low pay
Lack of training and development opportunities
Poor working conditions
Poor recruitment and selection processes
Economic boom
What is the formula for labour retention?
( Staff not leaving per year / Average no of staff ) * 100
What is the best strategy for labour retention?
Financial Rewards - more money can lead to employees working harder
What is the benefits of a high retention rate?
Lower requirement and selection cost
Better continuity
Stable workforce
Better experience and skill sets of workers
What is the formula for absenteeism?
( Days absent per year / Total number of working days ) * 100
What is the best strategy for absenteeism?
Consultation strategies - employees are more likely to motivated if they are involved in the decision making process
Why is absenteeism bad?
Business has to pay sick pay
Temporary staff have to be paid for
Existing staff have to be paid overtime
Output suffers - temp staff are less productive
Absence can delay / prevent big projects
Production delays / quality decrease could prevent customers
Demotivating for remaining staff
Cultural shift - is it ok to call in sick
What is the gearing ratio?
It tell you what proportion the business value is financed by long term debt
What is the gearing ratio formula and what does the output tell us?
(non-current liabilities/ Capital Employed) x 100
Gearing > 50%
-vulnerable to increases to interest rates
Gearing < 50%
- May be able to borrow more
- Business isn’t taking enough risk
What is the Return on Capital Employed (ROCE)?
It tells us the Return on capital employed. Relates profit to the size of the business
What is the Return on Capital Employed (ROCE) formula and what does the result mean?
(Operating Profit/ Capital employed) x 100
- The higher the percentage the better
- Identify trends
- Low quality profit (eg selling random assets or benefiting from a trend) might boost ROCE and be miss leading
- Needs to compared to interest rates (would saving in the back be more profitable than investing in a business)
What are the limitations of ratio analysis?
The basis for comparison - less reliable over times when comparing
The quality of financial accounts - eg when inflation is high are asset values inflated accordingly
Limitations of the balance sheet
Qualitative information is ignored - eg change in leader ship
Other differences - eg different accounting methods or accounting methods can be misleading for investors
Window dressing - Making the ratio analysis look better than it is
What is the formula for capital employed?
Fixed Assets + Net Current assets
Or
TA - TL
What is the equation for Net export?
Exports - Imports
What is imports with examples?
Binging good and services from another country to the home county
Eg Foods: apples
What is exports with examples?
Selling goods and services from the home country to other countries
Eg tourism: London
What is the advantages and disadvantages of imports?**
+fulfils the demand of goods and services that are lacking or not available in the home country
+
What is the advantages and disadvantages of exports?**
+creates more foreign income from the selling of home country products and increases the global presence of home country products and services
+benefits the home country since it increases the foreign income to the home country
Why do we need to export and import?
- Countries have specific natural recourses and lack others
- Countries need foreign currency in order to grow
- Countries access wealth from customers in other countries
- Firms can get cheaper costs by importing raw materials
- Increases sales potential (first mover advantage)
