Numerical Lines Of Analysis And Formulas

Question 1

Percentage change formula

Answer 1

Change
———X100
Original

Question 2

Index numbers formula

Answer 2

New year price
——————— X 100
Base year price

Question 3

Market share formula

Answer 3

Total sales revenue of the company——————————————- X100
total sales revenue at the market


Question 4

Volume of product in market formula

Answer 4

Total volume of the product
——————————— X100
Total sales volume of the market

Question 5

Market growth formula

Answer 5

Difference in total sales revenue of the market
————————————— X100
Original sales revenue of the market

Question 6

Volume of product in market growth formula

Answer 6

Difference in total sales volume of the market
———————————————X100
Original sales volume of the market

Question 7

Market share / Market Growth analysis

Answer 7

Competitive advantage eg customer service -) differentiation -) price inelastic -) increase price without significant fall in demand -) increase sales revenue -) potentially more than rivals -) increasing market share by value.

Question 8

PED formula

Answer 8

% change in quantity demanded
———————————————
% change in price

Question 9

Price elastic analysis

Answer 9

Due to poor customer service a business product may become price elastic -) leading to customer being less loyal to brand -) increasing SP leads to significant fall in demand -) pressure to keep prices low -) lower revenue -) reducing gross profit margin.

Question 10

Price inelastic analysis

Answer 10

Through Rand D -) differentiate -) customers likely to stay loyal as can’t get same products from competitors -) making them price inelastic so can charge higher prices without a significant fall in demand -) increased revenue -) increased gross profit margin.

Question 11

YED formula

Answer 11

% change in demand
——————————
% change in income

Question 12

Luxury goods analysis

Answer 12

Business vulnerable to changes in average incomes -) if many people lose their jobs there will be a fall In incomes -) lead to significant fall in demand for a business’s goods as consumer switch to cheaper alternatives -) fall in revenue resulting in fall in gross profit -) lead to operating loss putting them under pressure to reduce their expenses -) could sell their NCA eg stores and factories -) reducing scale.

Question 13

Normal goods analysis

Answer 13

If business sells normal goods likely to have stable predictable sales -) this is because when incomes change demand does not change much -) unlikely to see significant rise or fall in profits when income changes -) unlikely to make a loss and then keep up with loan repayments -) Result in them getting low interest rates on loans leading to lower expenses -) business attractive to banks as it’s seen as a safe investment

Question 14

Inferior goods analysis

Answer 14

When unemployment is high then incomes will be lower and therefore the demand of inferior goods will increase -) the may need to be flexible to be able to respond to unexpected change in income so they can increase production of a good to meet the new demand -) increase in gross profit -) flexibility helps reduce production when incomes rise again -) This will help ensure that they can reduce operating expenses when demand falls therefore avoiding losses.

Question 15

Cost plus pricing formula

Answer 15

Total costs X 1.1 if mark up is 10%
1.2 if mark up is 20% 1.3 if markup is 30%

Question 16

Break even formula

Answer 16

Fixed costs
—————
SP - VC (CPU)

Question 17

Break even analysis

Answer 17

By switching from ethically sourced materials they may be able to reduce VC -) as able to use material that is cheaper than recycled there’s plastic bottles -) a lower price for raw materials will lower the economic manufacturing cost -) increasing the contribution per bag or wallet -) leading to a lower break even point -) meaning less units need to be sold to make a profit

Question 18

Budgets formula

Answer 18

Income:

Income budget - calculate revenue (sales volume x price)

Actual income - calculate revenue (Sv x price)

Variance income - difference between actual and budgeted

If it’s more than plan it’s favourable
If it’s less than planes it’s adverse

Profit:

Income budget - expenditure budget
Income actual - expenditure actual
Variance - actual profit - budget profit

Question 19

Budget analysis

Answer 19

Budgets allow businesses to plan for the future -) they can plan their expenditure in advance -) reduces the chances of overspending -) lower cash outflows -) positive net cash flow -) increased cash reserves -) better liquidity -) able to pay day to day bills.

Question 20

Cash flow formulas

Answer 20

Total cash outflows - add up all cash inflows

Total cash outflows- add up all cash outflows

Net cash flow - inflows - outflows

Opening balance - closing balance from previous month

Closing balance - opening balance add net cash flow

Question 21

Cash flow analysis

Answer 21

Business may experience fluctuations in sales -) means that they experience a reduction in cash inflows at certain times -) so if they can accurately forecast cash flow the business may be able to plan accurately -) such as reducing their staff numbers if they forecast lower cash inflows during these periods -) allowing them to reduce their wages and subsequent cash outflows -) improving net cash flow during peak seasons and ensuring they have sufficient levels of cash to keep up with essential payments such as wages.

Question 22

Productivity formula

Answer 22

Total output
————x100
Total inputs

Question 23

Productivity analysis

Answer 23

As businesses grow they begin to make better use of capital / machinery or have the resources to invest in more -) an increase use of machinery will improve productivity and further increase output -) spreading FC of production over more units eg rent or utilities -) allowing business to lower SP increase gross profit margin -) lower unit costs of producing a product

Question 24

Profits formula

Answer 24

Profit - SP - COS

Gross profit - SR - COS

Operating profit - GP - expenses

Net profit - Gross profit - total expenses

Question 25

Profit margin formula

Answer 25

GP — X 100 SR OP —X100 SR Net profit ———X100 Sales revenue

Question 26

ROCE formula

Answer 26

Operating profit ———————X 100 Capital employed (NCL + total equity)

Question 27

High ROCE formula

Answer 27

Business has a higher ROCE -) business is making efficient use of its capital to generate profit -) high profitability -) higher return on investment for shareholders -) increase in dividends paid -) business more attractive to investors -) higher share price -) able to generate more capital by selling shares in the future.

Question 28

Low ROCE

Answer 28

The business has a low ROCE -) not making efficient use of the capital to generate profit -) low profitability -) lower return on investment for shareholders -) may be unable to pay hide dividends -) business is less attractive to shareholders -) cannot increase share price -) unable to raise much capital by selling shares in the future.

Question 29

Gearing formula

Answer 29

Non current liabilities —————————X 100 Capital employed

Question 30

High gearing analysis

Answer 30

High amount of capital financed through debt -) increased cash outflows for loan capital repayments -)and interest repayments -) reducing cash reserves -) reduced current assets -) lower current ratio -) Poor liquidity -) difficult meeting current liabilities such as payables when due

Question 31

High gearing taking opportunities analysis

Answer 31

High amount of capital finance to debt -) increase capital within the business opportunity to invest into increasing scale -) such as additional factory or machinery -) opportunity to achieve technical economies of scale -) improve productivity and increase output -) fixed cost of production spread over more units -) Lower unit fixed costs.

Question 32

Low gearing analysis

Answer 32

Lower amounts of capital finance through debt -) reduced cash out for a loan capital repayments -) Less interest to be paid compared to high gearing -) ensuring no additional strain placed on cash reserves. -) Increased current assets -) High current ratio -) Good liquidity able to meet current liability such as payables -) no risk of having to sell non-current assets to use as cash.

Question 33

Low gearing missed opportunity analysis

Answer 33

Low amount of capital finance through debt -) reduced capital within the business -) missed opportunity to borrow capital that could be used to invest into increasing scale -) such as additional factory or machinery -) Better opportunity to capitalise on increased demand -) increase sales revenue that could help business increase market share.

Question 34

Liquidity ratio formula

Answer 34

CA — CL

Question 35

What is the ideal current ratio and acid test ratio

Answer 35

Ideal CR = 1.5 - 3.1 Below = 1.5 - 1 Above = 3 - 1 Acid test = current assets - stock divided by the current liabilities  Ideal = 0.75 , 1, 1.5 Below = 0.75,1 Above = 1.5, 1

Question 36

High liquidity analysis

Answer 36

High liquidity, current ratio of 1.5 acid test above 1 -) high amount of cash reserves are working capital -) keep up with payments to suppliers and banks -) what have to sell non-current assets to keep up with day-to-day bills -) likely to have uninterrupted business operations reducing risk of failure

Question 37

Low liquidity analysis

Answer 37

Low liquidity, current ratio below 1 acid test below 0.75 -) low levels of cash reserves -) Business will struggle to pay suppliers and banks -) may be forced to sell non current assets to pay day-to-day bills -) may lead to disruption in business operations leading to high risk of failure.

Question 38

Labour turnover formula

Answer 38

Number of employees leaving during a period ———————————————X 100 Average number employed during period Or Number at the beginning, add number at the end divided by 2

Question 39

Labour turnover analysis

Answer 39

Business will aim to reduce the labour turnover -) as a high labour turnover means a business will be recruiting a large number of new employees -) this will increase business is cash outflows -) as new employees will require induction training -) placing a strain on the cash reserves -) reducing the current assets -) reducing current ratio -) leading to poor liquidity.

Question 40

Labour retention formula

Answer 40

Number of staff staying ———————————- X 100 average number of staff in post

Question 41

Labour retention analysis (adapt if it’s a service business)

Answer 41

Business will aim to have a high rates of labour retention -) as a high level of labour retention means that the majority of a business is staff remain at the business -) meaning of business will not need to recruit a large volume of new employees -) reducing labour costs as they will not need to conduct induction training -) reduced cash out those cash reserves remain high, high current assets. Good liquidity

Question 42

Absenteeism formula (Number of employees absent during a period)

Answer 42

Number of employees absent during a period ———————————————X100 Number employees during period

Question 43

Annual absenteeism formula

Answer 43

Total num of staff absent over a year ———————————————X100 Total number of staff days that should have been worked

Question 44

Absenteeism analysis Adapt if business is a service

Answer 44

Business will aim to reduce their absenteeism -) as a high level of absenteeism means a large proportion of the business staff will be absent over a certain period -) meaning a business will struggle to operate with high level of productivity -) capacity utilization would be low -) so their FC would be spread over less units -) increasing unit FC -) reducing operating profit margin

Question 45

Exchange rates formula

Answer 45

£1 = $ 1.50 From pound to dollars X From dollars to pounds divide

Question 46

Strong pound benefit

Answer 46

The pound buys more forighn currency -) less pounds required to buy foreign currency -) therefore less pounds required to buy foreign goods -) cheaper to import raw materials -) lower cost of sales -) can lower selling price OR there higher gross profit.

Question 47

Strong pound drawback

Answer 47

Foreign currency buys less pounds -) more foreign currency needed to buy pounds -) therefore price of um goods increase for foreigners -) I'm exports are dearer and less competitive -) fall in demand for uke goods -) pressure to keep prices low OR lower gross profit

Question 48

Strong pound drawback

Answer 48

The pound buys more foreign currency -) less pounds required to buy foreign currency -) before less pounds required to buy foreign goods -) foreign competitors appear cheaper -) customers switch to foreign imports -) fall in demand for domestic businesses

Question 49

Weak pound benefit

Answer 49

Foreign currency buys more pounds -) less foreign currency needed to buy pounds -) therefore price of um goods falls for foreigners -) um exports are more cheaper and more competitive -) rise in demand for his goods -) economies of scale.

Question 50

Weak pound benefit

Answer 50

Pound buys less foreign currency -) more pounds needed to buy foreign currency -) foreign goods become more expensive as more pounds required to purchase them -) foreign competitorsunable to compete on price -) increase in demand for domestic businesses

Question 51

Weak pond drawback

Answer 51

Pound buys less foreign currency -) more pounds needed to buy foreign currency -) foreign goods become more expensive as more pounds required to purchase them -) increasing cost of raw materials of business relies on foreign goods -) increasing cost of sales -) lower gross profit margin -) or pressure to keep prices low this impacts of good is price elastic

Question 52

Moving averages

Answer 52

3 Point moving average = taking a number in the series with the previous and next numbers and dividing by 3 4 point moving average = adding 4 together then dividing by 4 8 point moving average = adding the first 2 four point averages Variation = calculated by working at the difference between the actual sales volume and the trend.

Question 53

Moving averages sales increasing analysis

Answer 53

The moving average shows sales are increasing -) numerical evidence -) therefore the business should reinvest in increasing capacity -) in order to keep up with rising demand -) increasing sales volume -) able to spread FC over more units -) lower fc per unit -) increasing operating profit margin

Question 54

Moving avarages sales falling

Answer 54

The moving average shows ales falling -) include numerical evidence -) therefore businesses should try to diversify their product portfolio -) invest in different products -) in order to spread risk if sales continue t ok I fall -) able to maintain high revenue -) keep high profit margins

Question 55

Moving averages seasonal analysis

Answer 55

The business has higher sales in specific quarters -) include numerical evidence -) the rode business is likely to be seasonal -) meaning that they may have a negative net cashflow in other months -) giving them lower cash reserves -) poor liquidity

Question 56

Investment appraisal payback

Answer 56

Amount left to pay ———————x52 Cash flow of the next year

Question 57

Quick Payback analysis

Answer 57

Investment pays off initial cost relatively quick -) if a loan was used for the initial investment -) the long period will be shorter -) reducing interest payments -) lower cash outflows -) improved liquidity -) able to reinvest cash reserves into other projects such as…

Question 58

Long payback analysis

Answer 58

Investment pays off initial cost slowly -) the business will need to wait for a longer time to recover their investment -) reduced cash reserves as cash is tied up in investment -) reducing g current assets -) poor liquidity -) may be unable to pay day to day bills -) risk of failure

Question 59

Net present value formula

Answer 59

Add all year return figures then minus the inital investment and divide by the number of years

Question 60

Average rate of return formula

Answer 60

Total net profit / num of years —————————————— X100 Initial cost Net profit = gross profit minus operating expenses and taxes.

Question 61

High NPV or ARR

Answer 61

Increased profitability -) increasing the business retained profit -) increased in total equity -) able to reinvest in further expansion of the business -) increased capacity -) may be able to gain economies of scale

Question 62

Low NPV or ARR

Answer 62

Low return on the investment -) lower operating profit -) lower ROCE -) unable to pay high didvidents to share holders -) less attractive to investors -) share price may fall -) difficult to raise capital I the future

Question 63

Drawback of all investment appraisals

Answer 63

Future cash flows are based on predictions -)therefore are vulnerable to external factors -) PESTLE factors -) could lead to predicted net cash flow to be lower than usual -) therefore investment appraisal is innacurrat -) meaning they can't be relied on

Question 64

Critical path formula

Answer 64

Do a past paper Q on critical path

Question 65

Benefit Critical path analysis

Answer 65

Calculating critical path allows a business to allocate resources appropriately to the critical path -) adapt so resources are specific to business eg cash or labour -) ensures project runs efficiently -) project is not delayed -) why is it important the project is not being delayed

Question 66

Drawback of critical path

Answer 66

Critical path analysis is based on assumptions and predictions -) so the business cannot account for changes in PESTEL factors -) this may mean that an activity will take longer than expected -) disrupting the project -) meaning business may need to allocate cash reserves to labour for longer than planned -) Link to balance sheet

Question 67

Capacity utilisation formula

Answer 67

Actual output —————X 100 Max output

Question 68

The benefit of high capacity utilisation to manufacturing business

Answer 68

Through improving worker motivation or advancement in production technology -) increased productivity -) increase output -) improve capacity utilization -) FC of production eg rent -) spread over more units -) lower unit fc -) increase operatinv profit margin of opportunity to decrease selling price -)

Question 69

Benefit of high capacity utilization to service business

Answer 69

Through exceptional customer service or high level of diffrentiaition -) business will have high sales volume -) increased number seats filled -) improved capacity utilization-) FC of providing a service eg rent wages -) spread over more units -) lower unit fc -) increase operating profit margin or opportunity to decrease selling price

Question 70

Drawback of high capacity utilization manufacturing business

Answer 70

operating with high capacity utilisation will mean that the business are working for long periods -) to produce high levels of output -) increased chance of machine failure -) disruption in the production process -) Increase expenses as business will need to spend on repairs -) poor customer service as long lead time.

Question 71

Drawback of high capacity utilisation service business

Answer 71

operating with high capacity utilisation -) means employees may be working for long periods -) To ensure business has strong brand reputation -) high percentage of seats full -) employees may feel overworked -) safety needs will not be met according to Maslow‘s hierarchy of needs -) employees become demotivated -) May look for employment elsewhere increasing labour turnover -) this will increase expenses as they will need to provide training costs to new employees

Question 72

benefit of low capacity utilisation for manufacturing business

Answer 72

Operating with low capacity utilisation -) will mean that businesses has time to service machinery in between production -) to reduce the chance of machine failure -) as machinery will need to be constantly in operation as capacity utilisation is low -) reducing the business expenses as less likely to need to repair machinery explain the benefits of reduced expenses -) or will retain positive brand image as no delay in production process -) making them differentiated -) price inelastic -) Can you increase the selling price without significant role in demand

Question 73

Benefit of low capacity utilisation service business

Answer 73

operating with low capacity utilisation-) means that employees will not be working for long periods as service may not be as busy -) improving working conditions -) ensuring safety needs are met according to Maslow’s hierarchy of needs -) and highly motivated delivering exceptional Customer service -) increase in the level of differention -) according to porters differentiation strategy -) the service becomes more price inelastic -) and therefore can increase the selling price without a significant fall in demand -) increasing sales revenue -) gross profit -) operating profit-) retained profit and total equity

Question 74

Drawback of low capacity utilisation for manufacturing business

Answer 74

Operating with low capacity, utilisation -) Means that the business is not fully utilising its resources -) Low levels of productivity -) reduced output -) fix costs of production are spread over less units eg rent wages and insurance -) increased unit fixed cost -) lower operating profit margin -) less profit to retain reinvest.

Question 75

Drawback of low capacity, utilisation for service business

Answer 75

operating with low capacity utilisation-) means that the business is not for fully utilising its resources-) Low percentage of seats filled -) lower sales Volume -) fixed cost of providing a service are spread over less seats eg wages -) increased unit FC -) lower operating profit -) less profit to retain and reinvest.