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
• 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