Business Equations

Question 1

Revenue (sales turnover)

Answer 1

Revenue = Selling price per unit x Number of unites sold

Question 2

Variable costs

Answer 2

Variable cost is = Variable cost per unit x Number of units sold

Question 3

Total costs

Answer 3

Total costs = Fixed costs + Variable costs

Question 4

Profit

Answer 4

Profit = total revenue - total costs OR Profit = total contribution - fixed costs

Question 5

Market capitalisation of a business

Answer 5

Market capitalisation of a business = Number of issued shares x current share price

Question 6

Expected value of a decision with two possible outcomes

Answer 6

Expected value of a decision with two possible outcomes e.g. A & B = [pay-off of A x probability of A] + [Pay off of B x probability of B]

Question 7

Net gain

Answer 7

Net gain = Expected value - Initial cost of decision

Question 8

Market growth %

Answer 8

Market growth = Change in the size of the market over a period/ original side of the market x 100

Question 9

Market share %

Answer 9

Market share = sales of one product OR rand OR business / Total sales in the market x 100

Question 10

Added value

Answer 10

Added value = sales revenue - costs of brought in goods and services

Question 11

Labour productivity

Answer 11

Labour productivity = Output over a time period / Number of employees

Question 12

Unit costs (average costs)

Answer 12

Unit costs = total costs / number of units of output x 100

Question 13

Capacity utilisation %

Answer 13

Capacity utilisation = Actual output / Maximum possible output x 100

Question 14

Return on investment

Answer 14

Profit from the investment b cost of the investment x 100

Question 15

Gross profit

Answer 15

Gross profit = Revenue - cost of sales

Question 16

Profit from operations

Answer 16

Profit from operations = operating profit = gross profit - operating Expenses

Question 17

Profit for the year

Answer 17

Profit for the year = operating profit + profit from other activities - net finance costs - tax

Question 18

Gross profit margin %

Answer 18

Gross profit = gross profit / revenue x 100

Question 19

Operating profit margin

Answer 19

Operating profit / revenue x 100

Question 20

Operating profit margin %

Answer 20

Operating profit / revenue x 100

Question 21

Profit for the year margin %

Answer 21

Profit for the year / revenue x 10p

Question 22

Variance

Answer 22

Budgeted figure - actual figure

Question 23

Contribution per unit

Answer 23

Contribution per unit = selling price - variable costs

Question 24

Total contribution

Answer 24

Total contribution = contribution per unit x units sold

Question 25

Break even output

Answer 25

Break even output = fixed costs / contribution per unit

Question 26

Margin of safety

Answer 26

Margin of safety = actual level of output - Break even level of output

Question 27

Labour turnover %

Answer 27

Labour turnover = number of staff leaving / number of staff employed by the business x 100

Question 28

Employee retention rate % for a particular time period

Answer 28

Employee retention rate for a particular time period = number of employees who remained with the business for the whole period of time / number of employees at start of the time period x 100

Question 29

Employee costs as a percentage of turnover

Answer 29

Employee costs a a percentage of turnover = employee costs / turnover x 100

Question 30

Labour cost per unit

Answer 30

Labour costs / units of output

Question 31

Return on capital employed %

Answer 31

Return on capital employed = operating profit / total equity + non current liabilities x 100

Question 32

Current ratio

Answer 32

Current ration= current assets / current liabilities x 100

Question 33

Payables days

Answer 33

Payables days = payables cost of sales x 365

Question 34

Receivables days

Answer 34

Receivables days = receivables / revenue x 365

Question 35

Inventory turnover

Answer 35

Inventory turnover = cost of sales / average inventories held

Question 36

Average rate of return %

Answer 36

Average rate of return = average annual return sp/ initial cost of project x 100