ALL EQUATIONS BUSINESS

Revenue

selling price X quantity sold

Gross, operating and net profit

Gross = revenue - cost of sales

Operating = Gross profit - operating expenses

Net = operating - interest and Tax

gross, operating and net profit MARGIN

X ÷ revenue X 100

Total variable costs

variable cost per unit X total output

net cash flow

cash inflows - cash outflows

Price elasticity of demand (PED)

% change in quantity demand ÷ % change in price

Income elasticity of demand (YED)

% change in quantity demand ÷ % change in income

results meaning - PED

More than 1 = price elastic

between 0 and 1 = price inelastic

results meaning - YED

-1 to 1 = necessities (inelastic)

greater than 1 = luxury (elastic)

lesser than -1 = inferior (elastic)

labour productivity

output during a period ÷ number of employees

added value to products

selling price - the cost of inputs

unit costs

total costs ÷ total units produced

capacity utilisation

actual output ÷ maximum output X 100

aim for 80-90%

profit

total revenue - total costs

return on investment

(profit from investment ÷ cost of investment) X 100

difference between cash flow and profit

delayed payment - the revenue for selling the product is met but not the full cash flow

depreciation of assets = profit is lost, becoming a cost but no change to cash flow

profit margin

(profit / revenue) X 100

total contribution

revenue - total variable costs

contribution per unit

selling price - variable cost per unit

Break even

FC ÷ contribution per unit

net cash flow

cash inflow - cash outflow

opening balance and closing balance

closing - net cash flow + opening balance

opening - closing balance from previous section on cash flow forecast

labour turnover

number of employees leaving ÷ average number of employees X 100

average number of employees

(employees at start of year ÷ end of year) ÷ 2

labour productivity

output ÷ numberof employees

employee costs as a % of turnover

(employee costs ÷ turnover) X 100

labour costs per unit

labour costs ÷ units of output

Balance sheet: assets

liabilities + equity (so it ‘balances’)

net assets

total assets - total liabilities

capital employed

NCL + equity

OR

total assets - current liabilities

gearing

NCL / (NCL + equity / capital employed) X 100

ROCE

operating profit ÷ capital employed (NCL + equity) X 100

current ratio

current assets ÷ current liabilities (shown to X:1)

trade payables days

(trade payables ÷ cost of sales) X 365

trade receivables days

(trade receivables ÷ revenue) 365

inventory turnover

cost of sales / average inventory

Payback period (investment appraisal)

1. calculate cumulative cash flow (net cash flow + previous year cash flow) until reaching 0

   1. month = (cash flow left until 0 ÷ cash flow of following year) X 12

ARR (investment appraisal)

(average profit per year ÷ initial investment) X 100

1. calculate cumulative return (adding return to initial investment)

2. calculate average profit by taking profit and ÷ by number of years

3. dive by initial investment then X 100

NPV (investment appraisal)

1. calculate present value ( net cash flow X discount factor)

2. add them together