formulas 2

• Revenue (Sales or Turnover)

  Selling price per unit x Number of units sold
• Importance of Revenue formula

  • Calculates the total income generated from sales
  • Essential for assessing the scale of operations and setting revenue targets
• 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
• Importance of Profit formula

  • Fundamental to assessing the financial health and performance of a business
  • Helps in making strategic decisions, such as expansions or cost-cutting measures
• Market Growth (%)


  (Change in the size of the market over a period / Original size of the market) x 100
• Importance of Market Growth formula

  • Indicates how fast a market is expanding or contracting
  • Vital for strategic planning and assessing market opportunities
• Market Share (%)


  (Sales of one product OR brand OR business / Total sales in the market) x 100
• Importance of Market Share formula

  • Helps businesses understand their position relative to competitors
  • Important for evaluating competitiveness and setting marketing strategies
• Added Value


  Sales revenue - Costs of bought-in goods and services
• Importance of Added Value formula

  • Shows the additional value created by the business, which is important for understanding the business's efficiency and pricing power
• Labour Productivity


  Output over a time period / Number of employees
• Importance of Labour Productivity formula

  • Helps in evaluating employee efficiency and making decisions on workforce management
• Acid Test Ratio


  (Current assets - Inventory) / Current liabilities
• Importance of Acid Test Ratio

  • Measures a company's short-term liquidity, excluding inventory
  • Crucial for assessing the ability to meet immediate liabilities without selling inventory
• Unit Costs (Average Costs)

  Total costs / Number of units
• Importance of Unit Costs formula

  • Essential for pricing strategies, cost control, and profitability analysis
• Gross Profit


  Revenue - Cost of Sales
• Importance of Gross Profit formula

  • Indicates the financial efficiency of core operations, excluding other expenses
  • A key measure of operational performance
• Profit from Operations (Operating profit)

  Gross profit - Operating Expenses
• Importance of Profit from Operations formula

  • Shows the profit generated from normal business operations, excluding non-operating income and expenses
  • Vital for understanding the core profitability of a business
• Profit for year


  Operating profit + Profit from other activities - Net finance costs - Tax
• Importance of Profit for year formula

  • Calculates the net profit after all expenses, providing a comprehensive view of the company's profitability
• Gross Profit Margin (%)

  (Gross profit / Revenue) x 100
• Importance of Gross Profit Margin formula

  • Measures the percentage of revenue that exceeds the cost of goods sold, indicating the efficiency in managing production costs
• Profit from operations margin (Operating profit margin) (%)


  (Operating profit / Revenue) x 100
• Importance of Profit from operations margin formula

  • Shows the proportion of revenue left after covering operating expenses, crucial for assessing operational efficiency
• Profit for year margin (%)


  (Profit for year / Revenue) x 100
• Importance of Profit for year margin formula

  • Indicates the overall profitability of the company, reflecting the efficiency in generating profit from total revenue
• Variance


  Budgeted figure - actual figure
• Importance of Variance

  • Helps in understanding deviations from budgeted figures, essential for financial control and performance management
• Current Ratio


  Current assets / Current liabilities
• Importance of Current Ratio

  • Measures the ability to pay short-term obligations, crucial for financial stability analysis
• Gearing (%)


  (Non-current liabilities / (Total equity + non-current liabilities)) x 100
• Importance of Gearing formula

  • Indicates the degree of financial leverage, helping assess the risk associated with debt financing
• Payables Days


  (Payables / Cost of sales) x 365
• Importance of Payables Days

  • Measures the average time taken to pay suppliers, important for managing cash flow
• Receivables Days


  (Receivables / Revenue) x 365
• Importance of Receivables Days

  • Indicates the average time taken to collect payments from customers, critical for cash flow management