Business formulas

• Revenue (Sales or Turnover)

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

  Variable cost per unit x 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 x Current share price
• Expected value of a decision with two possible outcomes

  (Pay-off of A x probability of A) + (Pay-off of B x probability of B)
• Net gain

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

  Change in the size of the market over a period

  ------------------------------------------- x100

  original size of the market
• Market share (%)

  Sales of one product OR brand OR business / Total sales in the market x 100
• Added value

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

  Output over a time period / Number of employees
• Capacity utilisation (%)

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

  Profit from the investment (£) / Cost of the investment (£) x 100
• Gross Profit

  Revenue - Cost of Sales
• operating profit

  Gross profit - Operating Expenses
• net profit

  revenue - cost of sales - overheads - (tax and interest)
• Gross profit margin (%)

  Gross profit / Revenue x 100
• Operating profit margin (%)

  Operating profit / Revenue x 100
• Net profit margin (%)

  Net profit / Revenue x 100
• Variance

  Budgeted figure - actual figure
• Unit costs (average costs)

  Total costs

  —————————————————

  Number of units of output
• Contribution per unit

  Selling price — Variable costs per unit
• Total contribution

  Contribution per unit X Units sold

  OR

  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

  —————————————————- X 100

  Total number of staff employed
• Labour retention (%)

  Staff retained

  —————————————————— X100

  Total number of staff employed
• Employee costs % turnover

  Employee costs

  —————————— X100

  Turnover
• Labour cost per unit

  Labour costs

  ———————————

  units of output
• Return in capital employed ROCE (%)

  Operating profit

  ——————————————————— X100

  total equity + non current liabilities

  Total equity + NCL = capital employed
• Current ratio

  Current assets

  —————————

  current liabilites

  (n : 1)
• Gearing (%)

  Non current liabilities

  ——————————————————— X100

  total equity + non current liabilities

  total equity + NCL = capital employed
• Payables days

  Payables

  ———————— X365

  cost of sales
• Receivables days

  Receivables

  ———————— X365

  Revenue
• Inventory turnover

  Cost of sales

  ———————————————

  average inventories held
• Average rate of return (%)

  Average annual return (£)

  ——————————————— X100

  Initial cost of project (£)