formulas

Question 1

What is Market capitalisation?

Answer 1

Market capitalisation = current share price x number of shares sold

Question 2

What is Expected value?

Answer 2

Expected value = probability x outcome

Question 3

How is Net Gain calculated?

Answer 3

Net Gain = expected value – cost of decision

Question 4

What does Sales volume represent?

Answer 4

Sales volume = number of items sold

Question 5

How is Sales Value calculated?

Answer 5

Sales Value = volume x selling price

Question 6

How is Market growth (%) calculated?

Answer 6

Market growth = (market size in year – market size previous year) ÷ original market size x 100

Question 7

What is Sales growth?

Answer 7

Sales growth = change in market sales over a period of time ÷ original market sales x 100

Question 8

What is Market share?

Answer 8

Market share = sales of one product ÷ total sales in market x 100

Question 9

What is Price Elasticity of demand (PED)?

Answer 9

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

Question 10

What is Income elasticity of demand (YED)?

Answer 10

YED = % change in quantity demanded ÷ % change in income

Question 11

How is Variance calculated?

Answer 11

Variance = Actual – budget

Question 12

What is Contribution?

Answer 12

Contribution = selling price per unit – variable cost per unit

Question 13

How is Total contribution calculated?

Answer 13

Total contribution = contribution per unit x number of units sold

Question 14

How do you calculate Break even?

Answer 14

Break even = fixed costs ÷ contribution per unit

Question 15

What is Margin of safety?

Answer 15

Margin of safety = actual output – break even output

Question 16

What is Gross Profit?

Answer 16

Gross Profit = Sales Revenue – cost of sales

Question 17

How is Gross Profit Margin calculated?

Answer 17

Gross Profit Margin = Gross profit ÷ Sales Revenue x 100

Question 18

What is Operating Profit?

Answer 18

Operating Profit = Gross Profit – expenses

Question 19

How is Operating Profit Margin calculated?

Answer 19

Operating Profit Margin = Operating profit ÷ Sales revenue x 100

Question 20

What is Profit for the year margin?

Answer 20

Profit for the year margin = profit for the year ÷ Sales revenue x 100

Question 21

How is ROI calculated?

Answer 21

ROI = operating profit ÷ Capital Employed x 100

Question 22

What is Net Cash flow?

Answer 22

Net Cash flow = total inflows – total outflows

Question 23

How is Closing Balance calculated?

Answer 23

Closing Balance = opening balance + net cash flow

Question 24

What is Employee costs as a % of turnover?

Answer 24

Employee costs as a % of turnover = employee costs ÷ sales revenue x 100

Question 25

How is Labour productivity defined?

Answer 25

Labour productivity = output per period ÷ number of employees per period

Question 26

What is Labour costs per unit?

Answer 26

Labour costs per unit = total labour costs ÷ total units of output x 100

Question 27

How is Labour turnover calculated?

Answer 27

Labour turnover = number of employees leaving over a given period ÷ average number employed over a given period x 100

Question 28

What is Retention rate?

Answer 28

Retention rate = number of employees with one or more years’ service ÷ overall employee numbers x 100

Question 29

What are Current assets?

Answer 29

Current assets = inventories + receivables + cash and other cash equivalents

Question 30

What is Working capital or Net Current Assets?

Answer 30

Working capital = current assets – current liabilities

Question 31

How is Net assets calculated?

Answer 31

Net assets = non-current assets + working capital – non-current liabilities

Question 32

What does Assets employed represent?

Answer 32

Assets employed = net current assets + non-current assets

Question 33

What is Total equity?

Answer 33

Total equity = share capital + reserves

Question 34

How is Capital employed defined?

Answer 34

Capital employed = total equity + non-current liabilities

Question 35

What is Gross profit?

Answer 35

Gross profit = revenue – cost of sales

Question 36

What is Operating profit?

Answer 36

Operating profit = gross profit – expenses +/- exceptional items

Question 37

How is Profit before tax calculated?

Answer 37

Profit before tax = operating profit + finance income – finance costs

Question 38

What is Profit for the year?

Answer 38

Profit for the year = profit before tax – taxation

Question 39

How is Earnings per share calculated?

Answer 39

Earnings per share = profit for the year ÷ number of shares issued

Question 40

How is ROCE (Return on Capital Employed) calculated?

Answer 40

ROCE = operating profit or profit before tax ÷ (total equity + non-current liabilities) x 100

Question 41

What is Current ratio?

Answer 41

Current ratio = current assets ÷ current liabilities

Question 42

What does Gearing represent?

Answer 42

Gearing = non-current liabilities ÷ (total equity + non-current liabilities) x 100

Question 43

How is Payables days calculated?

Answer 43

Payables days = payables ÷ cost of sales x 365

Question 44

What are Receivables days?

Answer 44

Receivables days = receivables ÷ annual revenue x 365

Question 45

What is Inventory turnover?

Answer 45

Inventory turnover = cost of goods sold ÷ average inventories held

Question 46

What is Concentration ratio?

Answer 46

Concentration ratio = add up the market share of a specific number of businesses in that market, e.g. the top 3

Question 47

How is Payback calculated?

Answer 47

Payback = add the annual returns from an investment until the cumulative total equals the initial cost

Question 48

What is ARR?

Answer 48

ARR = (total net return or surplus from a project ÷ number of years) ÷ initial cost x 100