business formulas

• Average rate of return (%)

  average annual return/initial cost of project *100
• Revenue

  selling price per unit * number of units sold
• variable cost

  variable cost per unit * number of units sold
• gross profit

  revenue - cost of sales
• profit

  total revenue - total costs
• total costs

  fixed costs + variable costs
• market capitalisation

  number of issued shares * current share price
• net gain

  expected value - initial cost of decision
• expected value

  (pay off A + probabability of A) * (pay off B + probability of B)
• market growth

  change in market size / original market size * 100
• market share (%)

  sales of one product / total sales in market * 100
• added value

  sales revenue - cost of bought in goods or services
• labour productivity

  output over a time period / number of employees
• unit costs

  total costs / number of units of output
• capacity utilisation (%)

  actual output / maximum possible output *100
• current ratio = current assets / current liabilities
• return on investment (%)

  profit from investment / cost of investment *100
• operating profit

  gross profit - operating expenses
• profit for the 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
• variance

  budget figure - actual figure
• contribution per unit 


  selling price - variable costs per unit
• total contribution

  contribution per unit * units sold or total revenue - total variable costs
• break even

  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 * 100
• employee cost as a % of turnover

  employee cost / turnover * 100
• labour cost per unit

  labour costs / units of output
• inventory turnover

  cost of sales / average inventories held
• gearing (%)

  non-current liabilities/ total equity + non-current liabilities
• payable days

  payables / cost of sales * 365
• receivable days

  receivables / revenue * 365
• employee retention rate (%) for a period of time

  number of employees who remained with the business for a whole time period / number of employees at the start of the time period * 100
• return on capital employed (%)

  operating profit / total equity + non-current liabilities *100
• capital employed

  total equity + non-current liabilities