Business Formulas

Question 1

How do you calculate Revenue (Sales or Turnover)

Answer 1

Selling price per unit × Number of units sold

Question 2

How do you calculate Variable costs (Total variable costs)

Answer 2

Variable cost per unit × Number of units sold

Question 3

How do you calculate Total costs

Answer 3

Fixed costs + Variable costs

Question 4

How do you calculate Profit

Answer 4

Total revenue − Total costs OR Total contribution − Fixed costs

Question 5

How do you calculate Market capitalisation of a business

Answer 5

Number of issued shares × Current share price

Question 6

How do you calculate Expected value of a decision with two possible outcomes

Answer 6

A & B = (Pay-off of A × probability of A) + (Pay-off of B × probability of B)

Question 7

How do you calculate Net gain

Answer 7

Expected value − Initial cost of decision

Question 8

How do you calculate Market growth (%)

Answer 8

Change in the size of the market over a period / Original size of the market × 100

Question 9

How do you calculate Market share (%)

Answer 9

Sales of one product OR brand OR business /Total sales in the market × 100

Question 10

How do you calculate Added value

Answer 10

Sales revenue − costs of bought-in goods and services

Question 11

How do you calculate Labour productivity

Answer 11

Output over a time period / Number of employees

Question 12

How do you calculate Unit costs (average costs)

Answer 12

Total costs / Number of units of output

Question 13

How do you calculate Capacity utilisation (%)

Answer 13

Actual output / Maximum possible output × 100

Question 14

How do you calculate Return on investment (%)

Answer 14

Profit from the investment (£) / Cost of the investment (£) × 100

Question 15

How do you calculate Gross Profit

Answer 15

Revenue − Cost of Sales

Question 16

How do you calculate Operating profit

Answer 16

Gross profit − Operating Expenses

Question 17

How do you calculate Profit for year

Answer 17

Operating profit + Profit from other activities − Net finance costs − Tax

Question 18

How do you calculate Gross profit margin (%)

Answer 18

Gross profit / Revenue × 100

Question 19

How do you calculate Operating profit margin (%)

Answer 19

Operating profit / Revenue × 100

Question 20

How do you calculate Profit for year margin (%)

Answer 20

Profit for year / Revenue × 100

Question 21

How do you calculate Variance

Answer 21

Budgeted figure – actual figure

Question 22

How do you calculate Contribution per unit

Answer 22

Selling price − Variable costs per unit

Question 23

How do you calculate Total contribution

Answer 23

Contribution per unit × Units sold

OR

Total revenue − Total variable costs

Question 24

How do you calculate Break-even output

Answer 24

Fixed costs / Contribution per unit

Question 25

How do you calculate Margin of safety

Answer 25

Actual level of output − Break-even level of output

Question 26

How do you calculate Labour turnover (%)

Answer 26

Number of staff leaving / Number of staff employed by the business × 100

Question 27

How do you calculate Employee retention rate (%) for a particular time period

Answer 27

Number of employees who remained with the business for the whole period of time / Number of employees at start of the time period ×100

Question 28

How do you calculate Employee costs as percentage of turnover

Answer 28

Employee costs / Turnover × 100

Question 29

How do you calculate Labour cost per unit

Answer 29

Labour costs / Units of output

Question 30

How do you calculate Return on capital employed (ROCE)(%)

Answer 30

Operating profit / Total equity + non-current liabilities × 100

total equity + non-current liabilities = capital employed

Question 31

How do you calculate Current ratio

Answer 31

Current assets / Current liabilities

Question 32

How do you calculate Gearing (%)

Answer 32

Non-current liabilities / Total equity + non-current liabilities ×100

total equity + non-current liabilities = capital employed

Question 33

How do you calculate Payables days

Answer 33

Payables / Cost of sales × 365

Question 34

How do you calculate Receivables days

Answer 34

Receivables / Revenue × 365

Question 35

How do you calculate Inventory turnover

Answer 35

Cost of sales / Average inventories held

Question 36

How do you calculate Average rate of return (%)

Answer 36

Average annual return (£) / Initial cost of project (£) × 100

Question 37

How do you work out the Payback Period?

Answer 37

Work out the balance

Stop when the balance is less than net return the following year

Calculate the number of months:
Balance / Net return the following year x 12 months

Question 38

How do you work out the ARR?

Answer 38

Step 1: Calculate the overall profit generated from the investment

Step 2: Divide by the number of years of the project to obtain the average annual profit/return

Step 3: Calculate what % this is of the initial investment
ARR (%) = Average annual return / initial cost of project (£) x100

Question 39

How do you work out the NPV?

Answer 39

Step 1: Take each Net cash flow/ Return X the given discount factor

Step 2: Add up all the new Net present values

Step 3: Take away initial cost
= Investment NPV