Business Equations & Formulas Flashcards
How do you work out the TOTAL COSTS of a business?
Total costs = Fixed costs + Variable costs
What are the 2 methods a business can use to calculate their PROFIT?
1) Profit = Total revenue - Total costs
2) Profit = Total contribution - Fixed costs
How do you work out the TOTAL VARIABLE COSTS of a business?
Total Variable Costs = Variable cost per unit x Number of units sold
How do you work out a businesses SALES REVENUE OR TURNOVER?
Sales revenue or Turnover = Selling price per unit x Number of units sold
How do you work out the MARKET CAPITALISATION OF A BUSINESS?
Market Capitalisation of a business = Number of issued shares x Current share price
How do you work out the EXPECTED VALUE OF A DECISION WITH TWO POSSIBLE OUTCOMES (A and B)?
Expected value of a decision with two possible outcomes (A and B) = (Pay-off of A x probability of A) + (Pay-off of B x probability of B)
Note: Probability of A + Probability of B = 1.0
How do you work out the NET GAIN in a DECISION TREE?
In a decision tree Net gain = Expected value - Initial cost of decision
How do you work out the MARKET GROWTH (%) IN YEAR ‘X’?
Market growth (%) in year ‘X’ = Change in the size of the market between year (X-1) and year X ÷ Size of the market in year (X-1) X 100
How do you work out the SALES GROWTH (%) IN YEAR ‘X’?
Sales growth (%) in year ‘X’ = Change in sales of product or business between year (X-1) and year X ÷ Sales of product or business in year (X-1) X 100
How does a business work out their MARKET SHARE (%)?
Market Share (%) = Sales of one product (OR brand OR business) ÷ Total sales in the market X 100
How does a firm work out their PRICE ELASTICITY OF DEMAND (PED)?
Price elasticity of demand (PED) = Percentage change in quantity demanded ÷ Percentage change in price X 100
How do you work out the ADDED VALUE (VALUE ADDED)?
Added value (value added) = Sales revenue - Costs of brought-in goods and services
How does a business work out their LABOUR PRODUCTIVITY?
Labour productivity = Output per time period ÷ Number of employees
How does a business work out their UNIT COSTS (AVERAGE COSTS)?
Unit costs (average costs) = Total costs of production ÷ Number of units of output produced
How do you find out the CAPACITY UTILISATION (%) of a business?
Capacity utilisation (%) = Actual output in a given time period ÷ Maximum possible output in a given time period X 100
How do you work out the RETURN ON INVESTMENT (%)?
Return on investment (%) = Return on investment (£) ÷ Cost of the investment (£) X 100
How do you work out the GROSS PROFIT of a business?
Gross profit = Sales Revenue - Cost of Sales
How does a business work out their OPERATING PROFIT?
Operating profit = Sales Revenue - Cost of Sales - Operating Expenses
How does a business work out their PROFIT FOR YEAR?
Profit for year = Operating profit + Profit from other activities - Net finance costs - Tax
How do you work out the CONTRIBUTION PER UNIT of a business?
Contribution per unit = Selling price - Variable costs per unit
What are the 2 methods a firm can use to work out the TOTAL CONTRIBUTION?
Total contribution = Contribution per unit x Units produced (or sold)
OR
Total contribution = Total revenue - Total variable costs
How do businesses work out their BREAK-EVEN OUTPUT?
Break-even output = Fixed costs (£) ÷ Contribution per Unit (£)
How do you work out the BREAK-EVEN OUTPUT on a BREAK-EVEN CHART? (Say and Draw)
On a break-even chart: break-even output is the level of output at which TOTAL REVENUE equals TOTAL COSTS
How do you work out the LEVEL OF PROFIT AT A GIVEN LEVEL OF OUTPUT on a BREAK-EVEN CHART? (Say and Draw)
On a break-even chart the level of profit at a given level of output is the VERTICAL DISTANCE between the TOTAL REVENUE LINE and the TOTAL COST LINE
How do you work out the MARGIN OF SAFETY of a business?
Margin of safety = Actual level of output - Breakeven level of output
How do firms work out their GROSS PROFIT MARGIN (%)?
Gross profit margin (%) = Gross Profit ÷ Sales Revenue X 100
How do firms work out their OPERATING PROFIT MARGIN (%)?
Operating profit margin (%) = Operating Profit ÷ Sales Revenue X 100
How do firms work out their PROFIT FOR YEAR MARGIN (%)?
Profit for year margin (%) = Profit for the Year ÷ Sales Revenue X 100
How do firms work out their LABOUR TURNOVER (%)?
Labour turnover (%) = Number of staff leaving during the year ÷ Average number of staff employed by the business during the year X 100
How do firms work out their EMPLOYEE RETENTION RATE (%)?
Employee retention rate (%) = Number of staff who stayed throughout the year ÷ Average number of staff employed by the business during the year X 100
How do you work out the EMPLOYEE COSTS AS PERCENTAGE OF TURNOVER?
Employee costs as percentage of turnover = Employee Costs ÷ Sales Revenue X 100
How do firms work out their LABOUR COST PER UNIT?
Labour cost per unit = Labour costs ÷ Units of output
How do you work out the CAPITAL EMPLOYED?
Total equity + Non-current liabilities = Capital Employed
How do businesses work out their RETURN ON CAPITAL EMPLOYED (ROCE) (%)?
Return on capital employed (ROCE) (%) = Operating profit ÷ Total equity + non-current liabilities X 100
How do businesses work out their CURRENT RATIO?
Current Ratio = Current assets ÷ Current liabilities
How do businesses work out their GEARING %?
Gearing % = Non-current liabilities ÷ Total equity + non-current liabilities
How do businesses work out the AMOUNT OF DAYS IT’LL TAKE TO PAY OFF THEIR PAYABLES (CREDITORS)?
Payables (Creditors) Days = Payables ÷ Cost of Sales X 365
How do businesses work out the AMOUNT OF DAYS IT’LL TAKE RECEIVABLES (DEBTORS) TO PAY THE BUSINESS?
Receivables (Debtors) Days = Receivables ÷ Cost of Sales X 365
How do you find out a businesses INVENTORY TURNOVER?
Inventory Turnover = Cost of goods sold ÷ Average inventories held
How do businesses work out their AVERAGE RATE OF RETURN %?
Average rate of return % = Net return from project (£) / (number of years) ÷ Initial cost of project (£) X 100
