Business Studies formula cards (A2 & AS)

Business Studies formula cards (A2 & AS)

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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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Cost and Revenue

  • 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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Investment Appraisal

  • 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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