equations to know

Question 1

market share

Answer 1

market share = sales of a business / total sales in the market

Question 2

price elasticity of demand

Answer 2

PED = % change in demand / % change in price (e.g duck over pond)

Question 3

income elasticity of demand

Answer 3

YED = % change in demand / % change in income

Question 4

Breakeven

Answer 4

breakeven = total fixed costs / contribution per unit

Question 5

contribution

Answer 5

contribution = selling price - variable cost per unit

Question 6

total contribution

Answer 6

total contribution = contribution per unit x number of units sold

Question 7

margin of safety

Answer 7

margin of safety = total output - breakeven point

Question 8

gross profit

Answer 8

gross profit = sales revenue - cost of sales

Question 9

gross profit margin

Answer 9

gpm = gross profit / sales revenue x 100

Question 10

operating profit

Answer 10

operating profit = gross profit - expenses

Question 11

working capital

Answer 11

working capital = current assets - current liabilities

Question 12

Operating profit margin

Answer 12

OPM = operating profit / sales revenue x 100

Question 13

acid test ratio

Answer 13

acid test ratio = current assets - stock / current liabilities

Question 14

current ratio

Answer 14

current ratio = current assets / current liabilities

Question 15

a three period moving average

Answer 15

• Step 1: smooth the raw sales data from the table by calculating a 3-year moving average
• Take the first 3 years data and calculate an average
• Step 2: now leave out the first year and calculate the average for the next three years
• Step 3: now add all your calculated averages to the table
• The new calculation goes next to the middle year

Question 16

payback period

Answer 16

Use the net cash flow and add it cumulatively to understand which year it will be paid back
Months= amount left to be paid in year/ net cash inflow in year x 12months

Question 17

ARR

Answer 17

1. Calculate average annual profit
   Total profit from investment = Total net cash flow - initial investment
   Average annaul profit = Total profit from investment / number of years
2. Calculate ARR
   Average annual profit / initial investment x 100

Question 18

Formula for calculating the NPV

Answer 18

1. Multiply each net cash inflow by the relevant discount factor
2. Add all the annual NPVs to calculate the total return on the investment

Question 19

Gearing

Answer 19

Non-current liabilities / total equity + noncurrent liabilities x 100

Question 20

Return on capital employed (ROCE)

Answer 20

Operating profit / capital employed x 100

Question 21

Capital employed

Answer 21

total equity + non current liabilities

Question 22

labour productivity

Answer 22

total output / number of workers

Question 23

labour turnover

Answer 23

number of staff leaving / average number of staff x 100

Question 24

retention rates

Answer 24

number of employees serving more than one year / average number of staff

Question 25

absenteeism

Answer 25

number of staff absent per time period / total number of staff days worked per time period x 100

Question 26

GDP per capita (Gross Domestic Product)

Answer 26

National income / population