Equations

Question 1

Expected Value (of a decision with two outcomes)

Answer 1

Expected Value = (Pay-off of A x Probability of A) + (Pay-off of B x Probability of B)

Question 2

Net Gain

Answer 2

Net Gain = Expected Value - Initial Cost of Decision

Question 3

Unit Costs (Average Costs)

Answer 3

Unit costs (average costs) = Total costs / Number of units of output

Question 4

Capacity Utilisation (%)

Answer 4

Capacity utilisation (%) = (Actual output / Maximum possible output) × 100

Question 5

Return on Investment (%)

Answer 5

Return on investment (%) = (Profit from the investment ($) / Cost of the investment ($)) × 100

Question 6

Gross Profit

Answer 6

Gross Profit = Revenue - Cost of Sales

Question 7

Profit from Operations?

Answer 7

Profit from Operations = Operating profit = Gross profit - Operating Expenses

Question 8

Profit for Year

Answer 8

Profit for year = Operating profit + Profit from other activities - Net finance costs - Tax

Question 9

Gross Profit Margin (%)

Answer 9

Gross profit margin (%) = (Gross profit / Revenue) × 100

Question 10

Profit from Operations Margin (%)

Answer 10

Profit from operations margin = Operating profit margin (%) = (Operating profit / Revenue) × 100

Question 11

What is the formula for Profit for Year Margin (%)?

Answer 11

Profit for year margin (%) = (Profit for year / Revenue) × 100

Question 12

Variance

Answer 12

Variance = Budgeted figure - Actual figure

Question 13

Revenue (Sales or Turnover)

Answer 13

Revenue (Sales or Turnover) = Selling price per unit × Number of units sold

Question 14

Variable costs (Total variable costs)

Answer 14

Variable costs (Total variable costs) = Variable cost per unit × Number of units sold

Question 15

Total costs

Answer 15

Total costs = Fixed costs + Variable costs

Question 16

Profit

Answer 16

Profit = Total revenue - Total costs OR Total contribution - Fixed costs

Question 17

Market capitalisation of a business

Answer 17

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

Question 18

Market growth (%)

Answer 18

Market growth (%) = (Change in the size of the market over a period × 100) / Original size of the market

Question 19

Market share (%)

Answer 19

Market share (%) = (Sales of one product/ brand/ business × 100) / Total sales in the market

Question 20

Added value

Answer 20

Added value = Sales revenue - costs of bought-in goods and services

Question 21

Labour productivity

Answer 21

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

Question 22

Contribution per unit

Answer 22

Contribution per unit = Selling price - Variable costs per unit

Question 23

Total contribution

Answer 23

Total contribution = Contribution per unit x Units sold
OR
Total contribution = Total revenue - Total variable costs

Question 24

Break-even output

Answer 24

Break-even output = Fixed costs / Contribution per unit

Question 25

Margin of safety

Answer 25

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

Question 26

Labour turnover (%)

Answer 26

Labour turnover (%) = (Number of staff leaving / Number of staff employed by the business) × 100

Question 27

Employee costs as percentage of turnover

Answer 27

Employee costs as percentage of turnover = (Employee costs / Turnover) × 100

Question 28

Labour cost per unit

Answer 28

Labour cost per unit = Labour costs / Units of output

Question 29

Return on capital employed (ROCE) (%)

Answer 29

ROCE (%) = (Operating profit / (Total equity + non-current liabilities)) × 100

Where total equity + non-current liabilities = capital employed

Question 30

Current Ratio

Answer 30

Current assets / Current liabilities

Question 31

Gearing (%)

Answer 31

(Non-current liabilities / (Total equity + non-current liabilities)) × 100
Where total equity + non-current liabilities = capital employed

Question 32

Payables Days

Answer 32

(Payables / Cost of sales) × 365

Question 33

Receivables Days

Answer 33

(Receivables / Revenue) × 365

Question 34

Inventory Turnover

Answer 34

Cost of sales / Average inventories held

Question 35

Average Rate of Return (%)

Answer 35

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