Equations for 2022 exam Flashcards
Market share
Sales of a business ÷ Total sales in the market) x 100
Percentage change
(Difference between the two numbers ÷ original number) x 100
Cost plus pricing =
cost per product + (mark-up x unit cost)
E.g. a handbag is £80 plus 25% mark up.
£80 + (25% x £80) = £80 + £20 = £100
Sales volume =
total number of units sold over a period of time
Sales revenue =
number of units sold x unit price
Total variable costs =
number of units sold x variable cost per unit
Total costs =
Fixed costs + variable costs
Gross profit =
Sales revenue minus cost of sales
Operating profit =
Gross profit minus overheads
Net profit =
Operating Profit +/- Tax, finance costs (purchase or sales of assets)
Opening balance =
previous months closing balance
Closing balance =
Opening balance +/- Net cash flow
Net cash flow =
Total inflows – Total outflows
Break-even =
Fixed costs ÷ Contribution per unit
Contribution per unit =
Selling price per unit – Variable cost per unit
Total contribution =
Contribution per unit x Number of units sold
Margin of safety =
Actual output – break even output
Budget Variance =
Actual – Budget
Gross profit margin =
(Gross profit ÷ Sales revenue) x 100
Operating profit margin =
(Operating profit ÷ Sales revenue) x 100
Net profit margin =
(Net profit ÷ Sales revenue) x 100
Return on capital employed (ROCE) =
Operating/Net profit ÷ Capital employed) x 100
Working capital =
current assets –current liabilities
Current ratio =
= Current assets ÷ current liabilities
Acid test ratio =
(Current assets – inventory) ÷ current liabilities
Gearing ratio =
(Long term liabilities ÷ Capital employed) x 100
Productivity (labour) =
Output per period (units) ÷ Number of employees in that period
Capacity utilisation =
(Actual level of output ÷ Maximum possible output) x 100
3 point moving average
- Add up three values
- Divide by 3 to get the average
- Repeat for each period going down
This will create a trend line - smoothing out the peaks and falls
4 point moving average
We would take the Jan – April figures and add them together (4680+2970+2610+4950 = 15,210)
We would then take Feb – May figures and add them together (2970+2610+4950+3240 = 13,770 )
Then ADD the two totals together and DIVIDE by 8 (15,219+13,770) ÷ 8 = 3623.26 (2dp)
Payback – This refers to the amount of time it takes for a project to recover its initial outlay (investment).
How would you work out the payback for Proposal 2
Cash flows (£000s)
Proposal 1
Proposal 2
Proposal 3
Proposal 4
Year 0
- £120
- £95
- £80
- £160
Year 1
£80
£10
£30
£30
Year 2
£60
£40
£40
£50
Year 3
£40
£40
£30
£90
Year 4
£20
£60
£30
£80
Year 5
£40
£50
£20
£60
- Its going to cost the business £95,000 to get this project up and running
- Year 1 the project makes £10,000
- Year 2 the project makes £40,000
- Year 3 the project makes £40,000
- So far it has paid back £90,000
Now we need £5,000 more from year 4 so….
£5,000 x 12 = 0.9 so 1 month
£60,000
Average rate of return (ARR) =
Cash flows (£000s)
Proposal 1
Proposal 2
Proposal 3
Proposal 4
Year 0
- £120
- £95
- £80
- £160
Year 1
£80
£10
£30
£30
Year 2
£60
£40
£40
£50
Year 3
£40
£40
£30
£90
Year 4
£20
£60
£30
£80
Year 5
£40
£50
£20
£60
Average net return per year ÷ Project costs (initial investment amount) X 100
So for the above example Proposal 2:
Average net cash flow is the sum of year 1 to year 5 net cash flow figures:
£10, 000+£40,000+£40,000+£60,000+£50,000 = £200,000 Then take off investment £95,000 leaves £105,000 net return
Divided by 5 gives us the net return per annum : 105,000 ÷ 5 = £21,000
Initial investment is £95,000
ARR = (£21,000 ÷ £95,000) x 100 ARR = 22.11%
Net Present Value (NPV) =
Each year net cash flow x discount factor (you will be told what to use)
Add the discounted net cash flows for each year
