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A Level Key Terms & Formulas > Business Equations & Formulas > Flashcards

Business Equations & Formulas Flashcards

1
Q

How do you work out the TOTAL COSTS of a business?

A

Total costs = Fixed costs + Variable costs

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2
Q

What are the 2 methods a business can use to calculate their PROFIT?

A

1) Profit = Total revenue - Total costs

2) Profit = Total contribution - Fixed costs

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3
Q

How do you work out the TOTAL VARIABLE COSTS of a business?

A

Total Variable Costs = Variable cost per unit x Number of units sold

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4
Q

How do you work out a businesses SALES REVENUE OR TURNOVER?

A

Sales revenue or Turnover = Selling price per unit x Number of units sold

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5
Q

How do you work out the MARKET CAPITALISATION OF A BUSINESS?

A

Market Capitalisation of a business = Number of issued shares x Current share price

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6
Q

How do you work out the EXPECTED VALUE OF A DECISION WITH TWO POSSIBLE OUTCOMES (A and B)?

A

Expected value of a decision with two possible outcomes (A and B) = (Pay-off of A x probability of A) + (Pay-off of B x probability of B)

Note: Probability of A + Probability of B = 1.0

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7
Q

How do you work out the NET GAIN in a DECISION TREE?

A

In a decision tree Net gain = Expected value - Initial cost of decision

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8
Q

How do you work out the MARKET GROWTH (%) IN YEAR ‘X’?

A

Market growth (%) in year ‘X’ = Change in the size of the market between year (X-1) and year X ÷ Size of the market in year (X-1) X 100

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9
Q

How do you work out the SALES GROWTH (%) IN YEAR ‘X’?

A

Sales growth (%) in year ‘X’ = Change in sales of product or business between year (X-1) and year X ÷ Sales of product or business in year (X-1) X 100

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10
Q

How does a business work out their MARKET SHARE (%)?

A

Market Share (%) = Sales of one product (OR brand OR business) ÷ Total sales in the market X 100

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11
Q

How does a firm work out their PRICE ELASTICITY OF DEMAND (PED)?

A

Price elasticity of demand (PED) = Percentage change in quantity demanded ÷ Percentage change in price X 100

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12
Q

How do you work out the ADDED VALUE (VALUE ADDED)?

A

Added value (value added) = Sales revenue - Costs of brought-in goods and services

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13
Q

How does a business work out their LABOUR PRODUCTIVITY?

A

Labour productivity = Output per time period ÷ Number of employees

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14
Q

How does a business work out their UNIT COSTS (AVERAGE COSTS)?

A

Unit costs (average costs) = Total costs of production ÷ Number of units of output produced

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15
Q

How do you find out the CAPACITY UTILISATION (%) of a business?

A

Capacity utilisation (%) = Actual output in a given time period ÷ Maximum possible output in a given time period X 100

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16
Q

How do you work out the RETURN ON INVESTMENT (%)?

A

Return on investment (%) = Return on investment (£) ÷ Cost of the investment (£) X 100

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17
Q

How do you work out the GROSS PROFIT of a business?

A

Gross profit = Sales Revenue - Cost of Sales

18
Q

How does a business work out their OPERATING PROFIT?

A

Operating profit = Sales Revenue - Cost of Sales - Operating Expenses

19
Q

How does a business work out their PROFIT FOR YEAR?

A

Profit for year = Operating profit + Profit from other activities - Net finance costs - Tax

20
Q

How do you work out the CONTRIBUTION PER UNIT of a business?

A

Contribution per unit = Selling price - Variable costs per unit

21
Q

What are the 2 methods a firm can use to work out the TOTAL CONTRIBUTION?

A

Total contribution = Contribution per unit x Units produced (or sold)

                                          OR

Total contribution = Total revenue - Total variable costs

22
Q

How do businesses work out their BREAK-EVEN OUTPUT?

A

Break-even output = Fixed costs (£) ÷ Contribution per Unit (£)

23
Q

How do you work out the BREAK-EVEN OUTPUT on a BREAK-EVEN CHART? (Say and Draw)

A

On a break-even chart: break-even output is the level of output at which TOTAL REVENUE equals TOTAL COSTS

24
Q

How do you work out the LEVEL OF PROFIT AT A GIVEN LEVEL OF OUTPUT on a BREAK-EVEN CHART? (Say and Draw)

A

On a break-even chart the level of profit at a given level of output is the VERTICAL DISTANCE between the TOTAL REVENUE LINE and the TOTAL COST LINE

25
Q

How do you work out the MARGIN OF SAFETY of a business?

A

Margin of safety = Actual level of output - Breakeven level of output

26
Q

How do firms work out their GROSS PROFIT MARGIN (%)?

A

Gross profit margin (%) = Gross Profit ÷ Sales Revenue X 100

27
Q

How do firms work out their OPERATING PROFIT MARGIN (%)?

A

Operating profit margin (%) = Operating Profit ÷ Sales Revenue X 100

28
Q

How do firms work out their PROFIT FOR YEAR MARGIN (%)?

A

Profit for year margin (%) = Profit for the Year ÷ Sales Revenue X 100

29
Q

How do firms work out their LABOUR TURNOVER (%)?

A

Labour turnover (%) = Number of staff leaving during the year ÷ Average number of staff employed by the business during the year X 100

30
Q

How do firms work out their EMPLOYEE RETENTION RATE (%)?

A

Employee retention rate (%) = Number of staff who stayed throughout the year ÷ Average number of staff employed by the business during the year X 100

31
Q

How do you work out the EMPLOYEE COSTS AS PERCENTAGE OF TURNOVER?

A

Employee costs as percentage of turnover = Employee Costs ÷ Sales Revenue X 100

32
Q

How do firms work out their LABOUR COST PER UNIT?

A

Labour cost per unit = Labour costs ÷ Units of output

33
Q

How do you work out the CAPITAL EMPLOYED?

A

Total equity + Non-current liabilities = Capital Employed

34
Q

How do businesses work out their RETURN ON CAPITAL EMPLOYED (ROCE) (%)?

A

Return on capital employed (ROCE) (%) = Operating profit ÷ Total equity + non-current liabilities X 100

35
Q

How do businesses work out their CURRENT RATIO?

A

Current Ratio = Current assets ÷ Current liabilities

36
Q

How do businesses work out their GEARING %?

A

Gearing % = Non-current liabilities ÷ Total equity + non-current liabilities

37
Q

How do businesses work out the AMOUNT OF DAYS IT’LL TAKE TO PAY OFF THEIR PAYABLES (CREDITORS)?

A

Payables (Creditors) Days = Payables ÷ Cost of Sales X 365

38
Q

How do businesses work out the AMOUNT OF DAYS IT’LL TAKE RECEIVABLES (DEBTORS) TO PAY THE BUSINESS?

A

Receivables (Debtors) Days = Receivables ÷ Cost of Sales X 365

39
Q

How do you find out a businesses INVENTORY TURNOVER?

A

Inventory Turnover = Cost of goods sold ÷ Average inventories held

40
Q

How do businesses work out their AVERAGE RATE OF RETURN %?

A

Average rate of return % = Net return from project (£) / (number of years) ÷ Initial cost of project (£) X 100

A Level Key Terms & Formulas (7 decks)

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