Theme 2

Question 1

sales volume

Answer 1

total number of units sold over a period of time

Question 2

sales revenue

Answer 2

number of units sold x unit price

Question 3

total variable costs

Answer 3

number of units sold x variable cost per unit

Question 4

total costs

Answer 4

fixed costs + variable costs

Question 5

gross profit

Answer 5

total sales revenue - costs of sale

Question 6

gross profit margin

Answer 6

(gross profit / sales revenue) x100

Question 7

operating profit

Answer 7

gross profit - expenses (fixed overheads)

Question 8

operating profit margin

Answer 8

(operating profit / sales revenue) x100

Question 9

net profit

Answer 9

operating profit - interest

Question 10

net profit margin

Answer 10

(net profit / sales revenue) x100

Question 11

break even

Answer 11

fixed costs / contribution per unit

Question 12

contribution per unit

Answer 12

selling price per unit - variable cost per unit

Question 13

total contribution

Answer 13

contribution per unit x number of units sold

Question 14

margin of safety

Answer 14

actual/project sales - break even level of sales

Question 15

closing balance

Answer 15

opening balance +/- net cash flow

Question 16

net cash flow

Answer 16

total inflows - total outflows

Question 17

payback period

Answer 17

costs of project or investment / monthly cash flow in year of payback

Question 18

average rate of return (ARR)

Answer 18

((total net profit ÷ number of years) / initial cost) x100

Question 19

net present value (NPV)

Answer 19

each year net cash flow x discount factor

need to add the discounted net cash flows for each year

Question 20

current ratio

Answer 20

current assests / current liabilities

Question 21

acid test ratio

Answer 21

(current liabilities - inventories) / current liabilities

Question 22

productivity

Answer 22

total output / number of workers

Question 23

capacity utilisation

Answer 23

(current output / maximum possible output) x100

Question 24

labour/staff turnover

Answer 24

(number of employees that have left in a time period / average number of employees) x100

(average labour turnover is around 15%. 15-20% is ideal for businesses)

Question 25

labour/staff retention rate

Answer 25

(number of employees that haven’t left / average number of employees) x100

Question 26

absenteeism

Answer 26

(number of absence days taken by employees / total possible ‘workable’ days) x100

(lower rates are better. around 2% is acceptable)

Question 27

return on capital employed (ROCE)

Answer 27

operating profit / capital employed

Question 28

capital employed

Answer 28

total equity + non-current liabilities

Question 29

gearing

Answer 29

(non-current liabilities / capital employed) x 100