Formulas

Question 1

What is the formula for market capitalisation of a business?

Answer 1

Number of issued shares × Current share price

Question 2

How do you calculate dividend yield (%)?

Answer 2

Dividend per share (£) ÷ Share price (pence) × 100

Question 3

What is the formula for market growth (%)?

Answer 3

Change in the size of the market over a period ÷ Original size of the market × 100

Question 4

How is market share (%) calculated?

Answer 4

Sales of one product OR brand OR business ÷ Total sales in the market × 100

Question 5

What is the formula for price elasticity of demand?

Answer 5

Change in the quantity demanded ÷ Change in price

Question 6

What does income elasticity of demand measure?

Answer 6

Change in the quantity demanded ÷ Change in income

Question 7

How is revenue (sales or turnover) calculated?

Answer 7

Selling price per unit × Number of units sold

Question 8

What is the formula for total costs?

Answer 8

Fixed costs + Variable costs

Question 9

How is contribution per unit determined?

Answer 9

Selling price − Variable costs per unit

Question 10

What is the formula for total contribution?

Answer 10

Contribution per unit × Units sold OR Total revenue − Total variable costs

Question 11

What is break-even output?

Answer 11

Fixed costs ÷ Contribution per unit

Question 12

How is margin of safety calculated?

Answer 12

Actual level of output − Break-even level of output

Question 13

What is the formula for payable days?

Answer 13

Payables ÷ Cost of sales × 365

Question 14

How is receivable days calculated?

Answer 14

Receivables ÷ Revenue × 365

Question 15

What does the current ratio measure?

Answer 15

Current assets ÷ Current liabilities

Question 16

What is the acid test ratio formula?

Answer 16

(Current assets − Inventory) ÷ Current liabilities

Question 17

What is the formula for profit?

Answer 17

Total revenue − Total costs OR Total contribution − Fixed costs

Question 18

How is gross profit calculated?

Answer 18

Revenue − Cost of sales

Question 19

What is the formula for operating profit?

Answer 19

Gross profit − Operating expenses

Question 20

How is net profit defined?

Answer 20

Gross profit − Expenses

Question 21

What does profit for year represent?

Answer 21

Operating profit + Profit from other activities − Net finance costs − Tax

Question 22

How is gross profit margin (%) calculated?

Answer 22

Gross profit ÷ Revenue × 100

Question 23

What is the formula for operating profit margin (%)?

Answer 23

Operating profit ÷ Revenue × 100

Question 24

How is net profit margin (%) calculated?

Answer 24

Net profit ÷ Revenue × 100

Question 25

What is the formula for profit for year margin (%)?

Answer 25

Profit for year ÷ Revenue × 100

Question 26

What does variance measure?

Answer 26

Budgeted figure − Actual figure

Question 27

How is return on capital employed (ROCE) (%) calculated?

Answer 27

Operating profit ÷ (Total equity + non-current liabilities) × 100

Question 28

What is the formula for gearing (%)?

Answer 28

Non-current liabilities ÷ (Total equity + non-current liabilities) × 100

Question 29

How is added value calculated?

Answer 29

Sales revenue − Costs of bought-in goods and services

Question 30

What is the formula for unit costs (average costs)?

Answer 30

Total costs ÷ Number of units of output

Question 31

How is employee productivity defined?

Answer 31

Output over a time period ÷ Number of employees

Question 32

What does capacity utilisation (%) measure?

Answer 32

Actual output ÷ Maximum possible output × 100

Question 33

How is inventory turnover calculated?

Answer 33

Cost of sales ÷ Average inventories held

Question 34

What is employee turnover (%)?

Answer 34

Number of staff leaving ÷ Number of staff employed by the business × 100

Question 35

How are employee costs (as a percentage of turnover) calculated?

Answer 35

Employee costs ÷ Turnover × 100

Question 36

What is the formula for employee costs (per unit)?

Answer 36

Employee costs ÷ Units of output

Question 37

How is return on investment (%) calculated?

Answer 37

Profit from the investment (£) ÷ Cost of the investment (£) × 100

Question 38

What is the formula for average rate of return (%)?

Answer 38

Average annual return (£) ÷ Initial cost of project (£) × 100

Question 39

What does net present value (NPV) represent?

Answer 39

Present value − Cost of investment

Question 40

How is present value calculated?

Answer 40

Cash flow × Discount Factor