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

Flashcards in Business Equations & Formulas Deck (40):
1

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

Total costs = Fixed costs + Variable costs

2

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

1) Profit = Total revenue - Total costs

2) Profit = Total contribution - Fixed costs

3

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

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

4

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

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

5

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

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

6

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

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

7

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

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

8

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

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

9

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

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

10

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

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

11

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

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

12

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

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

13

How does a business work out their LABOUR PRODUCTIVITY?

Labour productivity = Output per time period ÷ Number of employees

14

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

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

15

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

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

16

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

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

17

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

Gross profit = Sales Revenue - Cost of Sales

18

How does a business work out their OPERATING PROFIT?

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

19

How does a business work out their PROFIT FOR YEAR?

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

20

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

Contribution per unit = Selling price - Variable costs per unit

21

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

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

OR

Total contribution = Total revenue - Total variable costs

22

How do businesses work out their BREAK-EVEN OUTPUT?

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

23

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

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

24

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

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

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

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

26

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

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

27

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

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

28

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

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

29

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

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

30

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

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

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

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

32

How do firms work out their LABOUR COST PER UNIT?

Labour cost per unit = Labour costs ÷ Units of output

33

How do you work out the CAPITAL EMPLOYED?

Total equity + Non-current liabilities = Capital Employed

34

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

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

35

How do businesses work out their CURRENT RATIO?

Current Ratio = Current assets ÷ Current liabilities

36

How do businesses work out their GEARING %?

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

37

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

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

38

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

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

39

How do you find out a businesses INVENTORY TURNOVER?

Inventory Turnover = Cost of goods sold ÷ Average inventories held

40

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

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