Business Equations

• Revenue =

  Selling price per unit x Number of units sold
• 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 =

  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 =

  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
• 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 retention rate (%) =

  (Number of employees who remained with the business for the whole period of time / Number of employees at start of the time period) × 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