Business Formulas

• Revenue (Sales or Turnover) =

  Selling price per unit × Number of units sold
• Variable costs (Total variable costs) =

  Variable cost per unit × Number of units sold
• Total costs =

  Fixed costs + Variable costs
• Profit =

  Total revenue − Total costs OR Total contribution − Fixed costs
• Market capitalisation of a business =

  Number of issued shares × Current share price
• Expected value of a decision with two possible outcomes eg. A & B =[Pay-off of A × probability of A] + [Pay-off of B × probability of B]
• Net gain =

  Expected value − Initial cost of decision
• Market growth (%) =

  Change in the size of the market over a period/

  Original size of the market × 100
• Market share (%) =

  Sales of one product OR brand OR business/

  Total sales in the market × 100
• Added value =

  Sales revenue − costs of bought-in goods and services
• Labour productivity =

  Output over a time period / Number of employees
• Unit costs (average costs)=

  Total costs / Number of units of output
• Capacity utilisation (%) =

  Actual output / Maximum possible output × 100
• Return on investment (%) =

  Profit from the investment (£) / Cost of the investment (£) × 100
• Gross Profit = Revenue − Cost of Sales
• Profit from Operations = Operating profit =

  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 margin (%) =

  Operating profit / Revenue × 100
• Profit for year margin (%) =

  Profit for year / Revenue × 100
• Variance = Budgeted figure – actual figure
• Contribution per unit = Selling price − Variable costs per unit
• Total contribution = Contribution per unit × Units sold OR Total contribution =

  Total revenue − Total variable costs
• Break-even output = Fixed costs / Contribution per unit
• Margin of safety = Actual level of output − Break-even level of output
• Labour turnover (%) =

  Number of staff leaving / Number of staff employed by the business × 100
• Employee costs as percentage of turnover =

  Employee costs / Turnover × 100
• Labour cost per unit =

  Labour costs / Units of output
• Return on capital employed (ROCE)(%) =

  Operating profit / Total equity + non-current liabilities × 100

  Where total equity + non-current liabilities = capital employed
• Current ratio =

  Current assets / Current liabilities
• Gearing (%) =

  Non-current liabilities / Total equity + non-current liabilities ×100

  Where total equity + non-current liabilities = capital employed
• Payables days =

  Payables / Cost of sales × 365
• Receivables days =

  Receivables / Revenue × 365
• Inventory turnover =

  Cost of sales / Average inventories held
• Average rate of return (%) =

  Average annual return (£) / Initial cost of project (£) × 100
• Re-order level


  Lead(time) in days x average daily usage + buffer stock level