formulas

Question 1

total costs (£)

Answer 1

fixed costs + variable costs

Question 2

profit (£)

Answer 2

total revenue - total costs

total contribution - fixed costs
(selling price - variable costs - fixed costs)

Question 3

total variable costs (£)

Answer 3

variable cost per unit x number of units sold

Question 4

revenue (sales or turnover) (£)

Answer 4

selling price per unit x number of units sold

Question 5

market capitalisation (£)

Answer 5

the total value of a companies issued shares

current share price x number of shares issued

Question 6

(decision trees) expected value

Answer 6

(financial result of A × probability of A) + (financial result of B × probability of B)

Question 7

(decision trees) net gain (£)

Answer 7

expected value - initial cost of decision

Question 8

market size/sales volume (units)

Answer 8

the quantity of goods and services produced in a particular market over a period of time (usually one year)

Question 9

market size/sales value (£)

Answer 9

total revenue generated from selling goods and services produced in a particular market over a period of time (usually one year)

Question 10

market growth (%)

Answer 10

change in market size/original market size x 100

Question 11

sales growth (%)

Answer 11

change in sales/original sales x 100

Question 12

market share (%)

Answer 12

sales of one product OR brand OR business/total sales in the market x 100

Question 13

price elasticity of demand (%)

Answer 13

change in demand/change in price x 100

Question 14

coefficient range PED and YED

Answer 14

PED:

more than 1 (demand is more sensitive to price change, eg. cuts can = revenue increases significantly) elastic.
less than 1 (demand is less sensitive to price change) inelastic

YED:

normal goods = demand increases as income increases

inferior goods = less than 1, demand decreases as income increases eg. used cars, tesco own brand orange juice
necessities = 0-1, demand decreases as income increases eg. staple groceries like milk, own label goods.
luxury = more than 1, demand increases as income increases. eg. branded goods, expensive holidays

Question 15

added value (£)

Answer 15

selling price - cost of raw materials

Question 16

unit cost (£)

Answer 16

cost per unit:

total costs of production/number of units

Question 17

labour productivity

Answer 17

output over a time period/number of employees

eg. 1000 units per employee

Question 18

capacity utilisation (%)

Answer 18

actual level of output/maximum possible output x 100

Question 19

return on investment (%)

Answer 19

annual return (£)/cost of investment (£) x 100

Question 20

gross profit (£)

Answer 20

sales revenue - cost of sales

Question 21

operating profit (£)

Answer 21

gross profit - operating expenses

Question 22

profit of the year (£)

Answer 22

(operating profit + all other profit) - (net financial costs - tax)

Question 23

gross/operating/yearly profit margin (%)

Answer 23

/revenue x100

Question 24

variance (£)

Answer 24

budgeted figure - actual figure

favourable variance = actual profits are higher than budgeted
adverse variance = actual profits are lower than budgeted

Question 25

contribution per unit (£)

Answer 25

profits made on each individual product

selling price per unit - variable costs per unit

Question 26

total contribution (£)

Answer 26

contribution per unit x total units sold

total revenue - total variable costs

Question 27

breakeven output (units)

Answer 27

fixed costs/contribution per unit

Question 28

breakeven point

Answer 28

where total revenue equals total costs

Question 29

margin of safety (units)

Answer 29

actual level of output - breakeven level of output

Question 30

labour turnover (%)

Answer 30

number of staff leaving/number of staff employed x 100

Question 31

employee retention rate (%)

Answer 31

number of employees who stayed for the whole period/number of employees at the start of the time period x 100

Question 32

employee costs as a percentage of turnover (%)

Answer 32

employee costs/sales turnover x 100

Question 33

labour cost per unit (£)

Answer 33

labour cost/units of output

Question 34

return on capital employed (£)

Answer 34

how efficiently a business has managed its finance

operating profit/capital employed

ideally, the higher the ROCE the better (higher op profit than cap employed)

Question 35

capital employed

Answer 35

total equity + non-current liabilities

(essentially equity is retained profits and share capital + non-current liabilities are long term debts)

Question 36

current ratio (liquidity ratio)

Answer 36

current assets/current liabilities

eg. debtors, cash, stock
eg. creditors, overdraft

Question 37

gearing (%)

Answer 37

non-current liabilities/capital employed x 100

(total equity + non-current liabilities = capital employed)

eg. loans, mortgages, bonds

Question 38

payables/creditor days

Answer 38

owed by a business to others eg. suppliers. want it to be more than receivables/debtor days

payables/cost of sales x 365

Question 39

receivables/debtors days

Answer 39

owed to a business by others eg. customers

receivables/sales revenue x 365

Question 40

inventory turnover (times)

Answer 40

how many times the business replaces its inventory each year

cost of goods sold (£)/average inventory held (£)

Question 41

average rate of return (%)

Answer 41

average annual return/initial cost of project x 100

Question 42

cash flow

Answer 42

inflows - outflows

Question 43

npv (net present value)

Answer 43

discount factor x cash flow