Equations

Question 1

What is the mark-up equation?

Answer 1

(Sales price - Purchase price)/Purchase price

Eg. Item purchased for £100 and sold on for £115, what is the mark-up?

(115-100)/100
=15/100
=0.15
=15%

Question 2

What is the equation for sales price?

Answer 2

Purchase price * Mark-up

Eg. An item is bought for £50 and the business use a mark-up of 10%, what is the item’s sales price?

50 * 1.10
=£55

Question 3

What is the Gross Margin equation?

Answer 3

(Sales price - Purchase price) / Sales price

Eg. An item is bought for £425, it is then sold on for £680. What is the Gross Margin of the item.

(680 - 425) / 680
=255 / 680
=0.375
=37.5%

Question 4

Net profit margin

Answer 4

(Net profit / Sales) * 100

Question 5

Return on capital employed (ROCE)

Answer 5

(Net profit / Capital employed) * 100

Capital employed = Total assets - current liabilities
= Equity + Long term debt

Question 6

Current ratio

Answer 6

Current assets / Current liabilities

Question 7

Acid test ratio

Answer 7

(Current assets - Inventory) / Current liabilities

Question 7

Acid test ratio

Answer 7

(Current assets - Inventory) / Current liabilities

Question 8

Acid test ratio

Answer 8

(Current assets - Inventory) / Current liabilities

Question 8

Acid test ratio

Answer 8

(Current assets - Inventory) / Current liabilities

Question 9

Gearing ratio

Answer 9

(Long term debt / (equity + long term debt) ) * 100

Question 10

Average Inventory turnover period

Answer 10

(Average Inventory / cost of Sales) * length of time in days months or years

Question 11

Receivables collection period

Answer 11

(Account receivables / Sales) * length of time in days or months or years

Question 12

Payables payment period

Answer 12

(Accounts payables / Purchases) * length of time in days or months or years

Question 13

Expected return

Answer 13

Risk free rate + Rick premium

Examples:
Risk free = treasury bills
Risk premium = investing in stock