Equations for 2022 exam

Question 1

Market share

Answer 1

Sales of a business ÷ Total sales in the market) x 100

Question 2

Percentage change

Answer 2

(Difference between the two numbers ÷ original number) x 100

Question 3

Cost plus pricing =

Answer 3

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

Question 4

Sales volume =

Answer 4

total number of units sold over a period of time

Question 5

Sales revenue =

Answer 5

number of units sold x unit price

Question 6

Total variable costs =

Answer 6

number of units sold x variable cost per unit

Question 7

Total costs =

Answer 7

Fixed costs + variable costs

Question 8

Gross profit =

Answer 8

Sales revenue minus cost of sales

Question 9

Operating profit =

Answer 9

Gross profit - overheads

Question 10

Net profit =

Answer 10

Operating Profit +/- Tax, finance costs (purchase or sales of assets)

Question 11

Opening balance =

Answer 11

previous months closing balance

Question 12

Closing balance =

Answer 12

Opening balance +/- Net cash flow

Question 13

Net cash flow =

Answer 13

Total inflows – Total outflows

Question 14

Break-even =

Answer 14

Fixed costs ÷ Contribution per unit

Question 15

Contribution per unit =

Answer 15

Selling price per unit – Variable cost per unit

Question 16

Total contribution =

Answer 16

Contribution per unit x Number of units sold

Question 17

Margin of safety =

Answer 17

Actual output – break even output

Question 18

Budget Variance =

Answer 18

Actual – Budget

Question 19

Gross profit margin =

Answer 19

(Gross profit ÷ Sales revenue) x 100

Question 20

Operating profit margin =

Answer 20

(Operating profit ÷ Sales revenue) x 100

Question 21

Net profit margin =

Answer 21

(Net profit ÷ Sales revenue) x 100

Question 22

Return on capital employed (ROCE) =

Answer 22

Operating/Net profit ÷ Capital employed) x 100

Question 23

Working capital =

Answer 23

current assets –current liabilities

Question 24

Current ratio =

Answer 24

= Current assets ÷ current liabilities

Question 25

Acid test ratio =

Answer 25

(Current assets – inventory) ÷ current liabilities

Question 26

Gearing ratio =

Answer 26

(Long term liabilities ÷ Capital employed) x 100

Question 27

Productivity (labour) =

Answer 27

Output per period (units) ÷ Number of employees in that period

Question 28

Capacity utilisation =

Answer 28

(Actual level of output ÷ Maximum possible output) x 100

Question 29

3 point moving average

Answer 29

1. Add up three values
2. Divide by 3 to get the average
3. Repeat for each period going down
   This will create a trend line - smoothing out the peaks and falls

Question 30

4 point moving average

Answer 30

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)

Question 31

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

Answer 31

• 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

Question 32

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

Answer 32

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%

Question 33

Net Present Value (NPV) =

Answer 33

Each year net cash flow x discount factor (you will be told what to use)
Add the discounted net cash flows for each year

Question 34

Capacity utilisation

Answer 34

(True Output / Potential Output) x 100

Question 35

Gearing ratio

Answer 35

(Non current liabilities / capital employed) x 100

Question 36

Capital employed

Answer 36

Total equity + non current liabilities