Business formulas

• What is the formula for Revenue (Sales or Turnover)?

  Selling price per unit × Number of units sold
• How do you calculate Variable costs?

  Variable cost per unit × Number of units sold
• What is the formula for Total costs?

  Fixed costs + Variable costs
• How is Profit calculated?

  Total revenue − Total costs
• What is another way to calculate Profit?

  Total contribution − Fixed costs
• What is the formula for Market capitalisation of a business?

  Number of issued shares × Current share price
• How do you calculate Expected value of a decision with two outcomes?

  Pay-off of A × probability of A + Pay-off of B × probability of B
• What is the formula for Net gain?

  Expected value − Initial cost of decision
• How is Market growth (%) calculated?

  Change in the size of the market / Original size of the market × 100
• What is the formula for Market share (%)?

  Sales of one product / Total sales in the market × 100
• How is Added value calculated?

  Sales revenue − costs of bought-in goods and services
• What is the formula for Labour productivity?

  Output over a time period / Number of employees
• How do you calculate Unit costs (average costs)?

  Total costs / Number of units of output
• What is the formula for Capacity utilisation (%)?

  Actual output / Maximum possible output × 100
• How is Return on investment (%) calculated?

  Profit from the investment (£) / Cost of the investment (£) × 100
• What is the formula for Gross Profit?

  Revenue − Cost of Sales
• How do you calculate Profit from Operations?

  Gross profit − Operating Expenses
• What is the formula for Profit for year?

  Operating profit + Profit from other activities − Net finance costs − Tax
• How is Gross profit margin (%) calculated?

  Gross profit / Revenue × 100
• What is the formula for Profit from operations margin?

  Operating profit / Revenue × 100
• How do you calculate Profit for year margin (%)?

  Profit for year / Revenue × 100
• What is the formula for Variance?

  Budgeted figure – actual figure
• How is Contribution per unit calculated?

  Selling price − Variable costs per unit
• What is the formula for Total contribution?

  Contribution per unit × Units sold
• How else can Total contribution be calculated?

  Total revenue − Total variable costs
• What is the formula for Break-even output?

  Fixed costs / Contribution per unit
• How is Margin of safety calculated?

  Actual level of output − Break-even level of output
• What is the formula for Labour turnover (%)?

  Number of staff leaving / Number of staff employed × 100
• How is Employee retention rate (%) calculated?

  Number of employees who remained / Number of employees at start × 100
• What is the formula for Employee costs as percentage of turnover?

  Employee costs / Turnover × 100
• How do you calculate Labour cost per unit?

  Labour costs / Units of output
• What is the formula for Return on capital employed (ROCE)?

  Operating profit / Total equity + non-current liabilities × 100
• How is Current ratio calculated?

  Current assets / Current liabilities
• What is the formula for Gearing (%)?

  Non-current liabilities / Total equity + non-current liabilities × 100
• How do you calculate Payables days?

  Payables / Cost of sales × 365
• What is the formula for Receivables days?

  Receivables / Revenue × 365
• How is Inventory turnover calculated?

  Cost of sales / Average inventories held
• What is the formula for Average rate of return (%)?

  Average annual return (£) / Initial cost of project (£) × 100
• What are the key formulae for calculating business performance?

  • Revenue = Selling price per unit × Number of units sold
  • Total costs = Fixed costs + Variable costs
  • Profit = Total revenue − Total costs
  • Market capitalisation = Number of issued shares × Current share price
  • Expected value = Pay-off of A × probability of A + Pay-off of B × probability of B
  • Market growth (%) = Change in market size / Original size × 100
  • Market share (%) = Sales of one product / Total sales in the market × 100
• What are the key profitability ratios and their formulas?

  • Gross Profit = Revenue − Cost of Sales
  • Profit from Operations = Gross profit − Operating Expenses
  • Profit for year = Operating profit + Profit from other activities − Net finance costs − Tax
  • Gross profit margin (%) = Gross profit / Revenue × 100
  • Profit from operations margin = Operating profit / Revenue × 100
  • Profit for year margin (%) = Profit for year / Revenue × 100