Business Formulas

Total Costs =
Fixed costs + variable costs
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Profit =
Total revenue - total costs OR total contribution - Fixed costs
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(total) Variable costs =
variable cost per unit x number of units sold
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Total Revenue (sales turnover) =
Selling price per unit x number of units sold
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Market capitalization of a business =
Number of shares issued x current share price
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Expected value (decision tree) =
(Pay off of A x profitability of A) + (pay off of B x profitability of B)
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Net gain (decision tree) =
Expected Value - Initial cost of decision
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Market Size (volume) =
the quantity of goods/services produced in a particular market over a period of time (usually a year)
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Market Size (value) =
Total sale revenue generated from selling all of the good/services produced in a particular market over a period of time
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Sales volume =
quantity of goods/services produced by a particular business of a period of time
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Sales value =
Total sales revenue of a particular business over a period of time
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Market Growth (%) in year x =
(change in size of market between year (x-1) and year x/Size of market in year (x-1)) x 100
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Sales growth (%) in year x =
(change in sales of product or business between year x-1 and year x/Sales of product in year x-1) x 100
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market Share (%) =
(sales of one product or brand or business/total sales in market) x 100
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Price elasticity of demand =
% change in quantity demanded/ % change in price
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Price inelastic demand
coefficient in the range 0 to -1
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Price elastic demand
coefficient in the range -1 to - infinity
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Added value (value added) =
Price of finished product - cost of inputs to make it
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Labour productivity =
Output per time period/number of employees
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Unit costs (average costs) =
Total cost of production/number of units of output produced
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Capacity Utilization (%) =
(actual output in time period/Max possible output in time period) x 100
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Return on investment (%) =
(return on investment £/ Cost of investment £) x 100
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Gross profit =
Sales revenue - cost of sales
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Operating profit =
Sales revenue - cost of sales - operating expenses
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profit for the year =
Operating profit + Profit from other activities - Net finance cost - tax
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Variance
The difference between actual and budgeted figure
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Favorable variance
Profit being higher than forecast (actual higher than budgeted)
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Adverse Variance
profits being lower than forecast (actual figures worse than the budgeted figure)
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Contribution per unit =
Selling price - variable cost per unit
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Total contribution =
Contribution per unit x units produced or sold
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OR total contribution =
Total revenue - total variable cost
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Breakeven output =
fixed costs / contribution per unit
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Breakeven chart
break even output is the level of output at which total revenue = total costs
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Margin of safety =
Actual level of output - breakeven level of output
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Gross profit margin (%) =
(Gross profit/sales revenue) x 100
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Operating profit margin (%) =
(Operating profit/sales revenue) x 100
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Profit for the year margin (%) =
(Profit for the year/sales revenue) x 100
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Labour turnover (%) =
(Num. of staff leaving during year/Average num. of staff employed during the year) x 100
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Employee Retention Rate (%) =
(num. of employees at end of time period - number of leavers)/number of employees at end of period) x 100
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Employee cost as a percentage of turnover =
(employee costs/sales turnover) x 100
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Labour cost per unit =
Labour costs / units of output
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Return on capital Employed (ROCE) (%) =
(operating profit/capital employed) x 100
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Capital employed =
Total equity + Non-current liabilities
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Current ratio =
Current assets / current liabilities
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Gearing (%) =
(non-current liabilities/capital employed) x 100
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Payables Days =
(Payables/ cost of sales) x 365
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payables =
creditors
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recievables days =
(receiveables/sales revenue) x 365
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recievables =
debtors
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Inventory turnover =
Cost of goods sold / average inventories sold
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Average rate of return (%) =
(Net return from project £or number of years/initial cost of project (£)) x 100
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Re-order level =
Buffer stock + (lead time x daily sales)
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Income elasticity of demand =
% change in quantity demanded/ % change in income
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Luxury good
income elasticity = MORE THAN 1
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Necessity good
income elasticity = 0 to +1
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Inferior good
income elasticity = LESS THAN 1
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Acid Test Ratio =
Current assets - stock / current liabilities
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Absenteeism rate =
(Num. of days ill/total num. of days worked) x 100
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Other cards in this set

Card 2

Front

Total revenue - total costs OR total contribution - Fixed costs

Back

Profit =

Card 3

Front

variable cost per unit x number of units sold

Back

Preview of the back of card 3

Card 4

Front

Selling price per unit x number of units sold

Back

Preview of the back of card 4

Card 5

Front

Number of shares issued x current share price

Back

Preview of the back of card 5
View more cards

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