Business formula's Flashcards
(32 cards)
What is the formula for Gross Profit?
Gross Profit = Revenue - Cost of Sales
What does Gross Profit indicate?
Shows profit after direct costs (e.g. materials, labor) are deducted
What is the formula for Operating Profit?
Operating Profit = Gross Profit - Operating Expenses
What does Operating Profit represent?
Profit from core operations before interest and tax
What is the formula for Net Profit?
Net Profit = Operating Profit - (Interest + Exceptional Costs)
What does Net Profit signify?
Final profit after all expenses
How is Gross Profit Margin calculated?
(Gross Profit / Revenue) × 100
What does Gross Profit Margin show?
Percentage of revenue that exceeds cost of sales
How is Operating Profit Margin calculated?
(Operating Profit / Revenue) × 100
What does Operating Profit Margin measure?
Efficiency of core operations
How is Net Profit Margin calculated?
(Profit for the Year / Revenue) × 100
What does Net Profit Margin indicate?
Overall profitability after all expenses
What is the formula for Current Ratio?
Current Assets / Current Liabilities
What does Current Ratio assess?
Ability to pay short-term obligations (ideal: 1.5–2:1)
What is the formula for Acid Test Ratio?
(Current Assets - Inventory) / Current Liabilities
What does Acid Test Ratio evaluate?
Stricter test of liquidity (ideal: 1:1)
What is the formula for Working Capital?
Working Capital = Current Assets - Current Liabilities
What does Working Capital show?
Short-term financial health
What is the formula for Capital Employed?
Capital Employed = Total Assets - Current Liabilities
What does Capital Employed represent?
Total long-term funding of a business
What is the formula for Gearing Ratio?
(Non-Current Liabilities / Capital Employed) × 100
What does Gearing Ratio indicate?
Shows business risk and reliance on debt
What is the formula for Payback Period?
Payback = Initial Investment / Annual Net Cash Inflow
What does Payback Period measure?
Time to recover initial investment
