Business Equations Flashcards
Profit
Profit = revenue - costs
Total costs
Total costs = total fixed costs + total variable costs
Revenue
Revenue = price x quantity sold
Break even points in units
Fixed cost / (sales price - variable cost)
or
Fixed costs / contribution per unit
Break even point in revenue
break-even point in units x sales price
Margin of safety
Margin of safety = actual output - break even output
Net cash flow
Net cash flow = cash inflows - cash outflows
Gross profit
Gross profit = sales revenue - cost of sales
Gross profit margin (%)
Gross profit margin (%) = gross profit / sales revenue (x100)
Net profit
Net profit = gross profit - expenses
Net profit margin (%)
Net profit margin (%) = net profit / sales revenue (x100)
Current ratio
Current ratio = current assets / current liabilities
Working capital
Working capital = current assets - current liabilities
Acid test ratio
Acid test ratio = (current assets - inventory) / current liabilities
Average cost per unit
Average cost per unit = total costs / total output
Capacity utilisation
Capacity utilisation = current output / maximum possible output (x100)
Percentage change
(Final value - original value) / original value x100
(F - O / O) x100
PED
(price elasticity demand)
PED = % change in quantity demanded / % change in price
IED
IED = % change in quantity demanded / % change in income
Contribution
Revenue - variable cost
Sales volume
Sales revenue / selling price
Good current ratio
1.7 - 2.0
Good acid test
Over 1.0
Total variance
Actual profit - budgeted profit
Spare capacity
Max - capacity utilisation %
ROCE (return of capital employed)
(Operating profit / capital employed) x100
Market share
(business sales / market sales) x100
ARR (average rate of return)
- Add the net cash flows together
- Subtract the cost
- Divide that number by the number of years
- Divide that number by cost and times by 100
- Answer should be a %
Labour productivity
Output / Number of employees
Labour turnover
(No. employees who left / Avg no. employees) x 100
Average no. employees = (No. employees at the start + No. employees at the end) ÷ 2.
Gearing ratio
(Non current liabilities / Capital employed) x100
Capital employed
Non current liabilities + total equity
