Formulae

Question 1

Revenue

Answer 1

Selling price x number of units sold

Question 2

Variable cost

Answer 2

Fixed cost per unit x number of units sold

Question 3

Total costs

Answer 3

Fixed costs + Variable costs

Question 4

Profit

Answer 4

Total revenue - total costs

Question 5

Market capitalisation

Answer 5

Number of shares x Share price

Question 6

Market growth

Answer 6

Change in size of market / original size of market x 100

Question 7

Market share

Answer 7

Sales of business / total sales in the market x 100

Question 8

Added value

Answer 8

Sales revenue - cost of bought good

Question 9

Labour productivity

Answer 9

Output / number of employees

Question 10

Unit costs

Answer 10

Total cost / number of units of output

Question 11

Capacity utilisation

Answer 11

Actual output / maximum possible output x 100

Question 12

Return on investment

Answer 12

Profit from investment / cost of the investment x 100

Question 13

Gross profit

Answer 13

Revenue - Cost of sales

Question 14

Gross profit margin

Answer 14

Gross profit / revenue x 100

Question 15

Labour turnover

Answer 15

of staff leaving / # of employees at the start x 100

Question 16

Labour cost per unit

Answer 16

Labour cost / units of output

Question 17

Return on capital employed (ROCE)

Answer 17

Operating profit / Total equity + non current liabilities x 100

Question 18

Current ratio

Answer 18

Current assets / current liability

Question 19

Gearing

Answer 19

Non current liabilities / total equity + non current liabilities x 100

Question 20

Payables days

Answer 20

Payables / CoS x 365

Question 21

Receivables days

Answer 21

Receivables / revenue x 365

Question 22

Inventory turnover

Answer 22

Cost of sales / average inventories held

Question 23

Average rate of return

Answer 23

Average annual return / initial cost of project x 100

Question 24

Identify the difference between profit, revenue and gross profit. Provide each formula to support your answer

Answer 24

Profit: revenue - total costs
The money left after paying expenses - the money that remains after all expenses have been subtracted from revenue. Portrays a business’ probability to shareholders. Profit indicates a company’s profit after all its expenses have been deducted from revenues.

Revenue: selling price x number of units sold
The amount of money generated from selling goods - does not take costs into account. Portrays how much money is generated from selling a good, without taking into account costs of it being produced.

Revenue describes income generated through business operations, while profit describes net income (total income) after deducting expenses from earnings - a more accurate representation as it takes into account costs of the product being produced.

Gross profit: revenue - cost of sales
The profit a business makes after subtracting all the costs that are related to manufacturing - the difference between revenue and cost of goods. Gross profit determines how well a company can earn a profit while managing its production and labor costs.