Business Equations

Question 1

Profit

Answer 1

Profit = revenue - costs

Question 2

Total costs

Answer 2

Total costs = total fixed costs + total variable costs

Question 3

Revenue

Answer 3

Revenue = price x quantity sold

Question 4

Break even points in units

Answer 4

Fixed cost / (sales price - variable cost)
or
Fixed costs / contribution per unit

Question 5

Break even point in revenue

Answer 5

break-even point in units x sales price

Question 6

Margin of safety

Answer 6

Margin of safety = actual output - break even output

Question 7

Net cash flow

Answer 7

Net cash flow = cash inflows - cash outflows

Question 8

Gross profit

Answer 8

Gross profit = sales revenue - cost of sales

Question 9

Gross profit margin (%)

Answer 9

Gross profit margin (%) = gross profit / sales revenue (x100)

Question 10

Net profit

Answer 10

Net profit = gross profit - expenses

Question 11

Net profit margin (%)

Answer 11

Net profit margin (%) = net profit / sales revenue (x100)

Question 12

Current ratio (Example - 2:1 = You have 2 pounds to pay for every 1 pound cost)

Answer 12

Current ratio = current assets / current liabilities

Question 13

Working capital

Answer 13

Working capital = current assets - current liabilities

Question 14

Acid test ratio

Answer 14

Acid test ratio = (current assets - inventory) / current liabilities

Question 15

Average cost per unit

Answer 15

Average cost per unit = total costs / total output

Question 16

Capacity utilisation

Answer 16

Capacity utilisation = current output / maximum possible output (x100)

Question 17

Percentage change

Answer 17

(Final value - original value) / original value x100

(F - O / O) x100

Question 18

PED
(price elasticity demand)

Answer 18

PED = % change in quantity demanded / % change in price

Question 19

IED

Answer 19

IED = % change in quantity demanded / % change in income

Question 20

Contribution per unit

Answer 20

selling price - variable cost

Question 21

Sales volume

Answer 21

Sales revenue / selling price

Question 22

Good current ratio

Answer 22

1.7 - 2.0

Question 23

Good acid test

Answer 23

Over 1.0

Question 24

Total variance

Answer 24

Actual profit - budgeted profit

Question 25

Spare capacity

Answer 25

Max - capacity utilisation %

Question 26

ROCE (return of capital employed)

Answer 26

(Operating profit / capital employed) x100

Question 27

Market share

Answer 27

(business sales / market sales) x100

Question 28

ARR (average rate of return)

Answer 28

1. Add the net cash flows together 2. Subtract the cost 3. Divide that number by the number of years 4. Divide that number by cost and times by 100 5. Answer should be a %

Question 29

Labour productivity

Answer 29

Output / Number of employees

Question 30

Labour turnover

Answer 30

(No. employees who left / Avg no. employees) x 100 Average no. employees = (No. employees at the start + No. employees at the end) ÷ 2.

Question 31

Gearing ratio

Answer 31

(Non current liabilities / Capital employed) x100

Question 32

Capital employed

Answer 32

Non current liabilities + total equity

Question 33

Absenteeism

Answer 33

No. absences / (No. workers x Total working days) x 100