Business theme 1 + 2 formulas

Market share

Market share is the percentage of total market sales captured by a product or business: (Sales of the product / Total market sales) × 100.

Market growth

Market growth is the rate at which the market size changes over time: [(Market size (new) − Market size (old)) / Market size (old)] × 100.

Price elasticity of demand

A measure of how sensitive quantity demanded is to a price change: (% Change in quantity demanded) / (% Change in price).

Income elasticity of demand

A measure of how sensitive quantity demanded is to a change in income: (% Change in quantity demanded) / (% Change in income).

Net cash flow

Net cash flow = Total inflows − Total outflows.

Sales volume

Total number of units sold over a period of time.

Sales revenue

Revenue from selling goods: number of units sold × unit price.

Total variable costs

Costs that vary with output: number of units sold × variable cost per unit.

Total costs

Total costs = Fixed costs + Variable costs.

Contribution per unit

Contribution per unit = Selling price per unit − Variable cost per unit.

Total contribution

Total contribution = Contribution per unit × Number of units sold.

Break-even

Break-even point = Fixed costs ÷ Contribution per unit.

Margin of safety

Margin of safety = Actual sales (or output) − Break-even output.

Variance

Variance = Actual − Budget.

Gross profit

Gross profit = Sales revenue − Cost of sales.

Operating profit

Operating profit = Gross profit − Overheads.

Net profit

Net profit = Operating profit ± Finance costs.

Gross profit margin

Gross profit margin = (Gross profit ÷ Sales revenue) × 100.

Operating profit margin

Operating profit margin = (Operating profit ÷ Sales revenue) × 100.

Profit for the year (net profit) margin

Profit for the year margin = (Profit for the year ÷ Sales revenue) × 100.

Current ratio

Current ratio = Current assets ÷ Current liabilities.

Acid test ratio

Acid-test ratio (quick ratio) = (Current assets − Stock) ÷ Current liabilities.

Productivity (labour)

Labour productivity = Output per period (units) ÷ Number of employees in that period.

Average unit cost

Average unit cost = Total costs ÷ Total output.

Capacity utilisation

Capacity utilisation = (Actual level of output ÷ Maximum possible output) × 100.