Business Studies formula cards (A2 & AS)

Ratio Analysis

Profitability:
G.P Margin = Gross Profit / sales x 100
N.P Margin = Net Profit / sales x 100
ROCE = Operating profit / capital employed x 100
These ratios provide a picture of the profitability and effiency of the business.
Activity:
Stock Turnover= Stock / Sales x 365 days
Debt Turnover= Debtors / Sales x 365 days
Asset Turnover= Sales / Net Assets
These ratios tell a business how well they are managing their resources.
Liquidity:
Current Ratio= Current Assets / Current liabilities
Acid Test Ratio= Current Assets -Stock / Current liabilities
These ratios focus on the short-term financial health of a business.
Gearing:
Gearing Ratio= long-term loans / Capital employed x 100%
These ratios focus on the long-term finances of a business.

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Total Cost= Fixed Cost + Variable Cost
Used by the business to see how much finance is required for each level of output.
Average Cost= Total Cost / Total Output
This can be used to establishe the basic price level by adding a suitable mark-up.
Contribution= Price - Marginal Cost
Marginal Cost: It the extra cost incurred in producing one more unit of output.
Total Revenue= Price x Quantity Sold
Is the amount of money a business receives from selling its products.

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ARR : Average annual profit/ Initial capital cost x 100
Average annual Profit: Total profit / No. of Years
Forecasted Net Cash Flow: Forecasted cash inflow (Annual Revenue) - Forcasted cash outflow (Annual operating costs)
Payback Period: Additional Cash Inflow Needed / Annual cash flow x 12

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Shareholder:
Earnings per share (EPS)= N.P after tax / No. of ordinary shares
Price/ Earning ratio (P/E)= Market Price / EPS
Dividend yield ratio= Dividend per share / Market Share Price x 100
Return on Equity %= Profit after tax, interest and preference dividends x100/ Share Holders funds
Efficiency:
Stock Turnover Ratio= Costs of goods sold / Average stock Holding
Debtor Day Ratio= Debtors/ Sale Turnover x 3

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