IB Business Management (Formulae)

Acid test (quick) ratio

(Current assets - Stock) / Current liabilities

Accumulated depreciation (balance sheet)

Accumulated depreciation = Sum of depreciation costs from previous years

Annual depreciation (straight line method)

Annual depreciation = (Purchase cost - Residual value) / Estimated useful lifespan

Average costs (or unit costs)

"Average costs = Total cost / Output or AC = TC / Q"

Average fixed cost (AFC)

"Average fixed cost = Total fixed cost / Output or AFC = TFC / Q"

Average rate of return (ARR)

ARR = [(Total returns − Capital cost) ÷ Years of use] / Capital cost × 100

Average stock

"Average stock = (Opening stock + Closing stock) / 2"

Average variable costs (AVC)

AVC = Total variable cost / Quantity (output)

Balance sheet (what needs to balance?)

Net assets = Total equity

Break-even point

BEP occurs where TC = TR on a break-even chart

Break-even quantity (output)

"Break-even quantity = Total fixed costs / Contribution per unit or BEQ = TFC / (P - AVC)"

Capital employed

Capital employed = Non-current liabilities + Equity

Capital productivity rate

"Capital productivity = Total output / Capital input or Capital productivity (output per machine hour) = Total output ÷ Machine hours"

Cash inflows (cash flow forecasts)

"Cash inflows = Cash sales revenue + Tax refund (include tax refund only if applicable to the question)"

Cash outflows (cash flow forecasts)

"Cash outflows = Rent + Packaging + Salaries and wages + Cost of sales + Heating and lighting + Delivery (these are from the prescribed format, page 63)"

Closing balance (cash flow forecasts)

Closing balance = Opening balance + Net cash flow for the month

Contribution per unit (unit contribution)*

Contribution per unit = Price - Variable cost per unit

Cost of sales (COS)

"Cost of sales = Opening stock + Purchases - Closing stock or COS = Sales - Gross profit"

Cost to buy (CTB)

"Cost to buy = Price × Quantity or CTB = P × Q"

Cost to make (CTM)

"CTM = (Average variable costs × Quantity) + Fixed costs or CTM = TFC + TVC"

Cost plus pricing (mark-up pricing)

Price = AVC + Profit margin per unit

Creditor days (number of days)

Creditor days = (Creditors / Cost of sales) × 365

Cumulative net cash flow (NCF)

Cumulative NCF = NCF in previous year(s) + NCF of current year

Current assets (balance sheet)

"Current assets = Stocks + Cash + Debtors"

Current liabilities (balance sheet)

Current liabilities = Bank overdraft + Trade creditors + Short-term loans

Current ratio

Current Assets / Current Liabilities

Debtor days (number of days)

Debtor days = (Debtors / Total sales revenue) × 365

Defect rate

"Defect rate = (Defects / Output) × 100 or Defect rate = (Defected output ÷ Output tested) × 100"

Depreciation expense (units of use method)

Depreciation expense = Units of production rate × Actual units produced

Direct costs

Clearly identifiable output-related expenditures

Equity (balance sheet)

Equity (or total equity) = Share capital + Retained earnings

Expenses

Gross profit - Profit before interest and tax

Fixed costs

TFC = TC - TVC

Free float (critical path analysis)

Free float of task = EST of next task - Duration - EST of current task

Gearing ratio (efficiency ratio analysis)

Gearing ratio = (Non-current liabilities / Capital employed) × 100

Gross profit (income statement)

Gross profit = Sales revenue - Cost of Sales

Gross profit margin (GPM)

GPM = (Gross profit / Sales revenue) × 100

Gross surplus (income statement for NPO)

Gross surplus = Sales revenue − Cost of sales

Interquartile range (descriptive statistics)

"Interquartile range = Quartile 3 - Quartile 1 OR IQR = Q3 - Q1"

Labour productivity rate

Labour productivity = Total output / Total labour input

Labour turnover rate

Labour turnover rate = (Number of employees leaving / Average number of employees) × 100

Lead time (production planning)

Lead time = Time of delivery - Time of placing the order

Margin of safety

Margin of safety = Actual output - Break-even quantity

Market growth

Market growth= [(Total sales in Year 2 − Total sales in Year 1) / Total sales in Year 1] ×100

Market share

Market share = (Firm's sales / Total market sales) × 100

Mean (descriptive statistics)

Mean average = Sum of items / Number of items

Median (descriptive statistics)

Median average = Middle value in a list of ordered numbers

Mode (descriptive statistics)

Modal average = Most frequently occurring value in a data set

Net assets (balance sheet)

Net assets = Total assets - Total liabilities

Net book value (NBV)

Net book value (NBV) = Original cost of asset - Accumulated depreciation

Net cash flow (cash flow forecasts)

Net cash flow = Cash inflow - Cash outflow (per time period)

Net current assets (or working capital)

Net current assets = Current assets - Current liabilities

Net predicted outcome (decision trees)

Net predicted outcome = Predicted outcome - Cost of decision

Net present value (NPV)

Net present value (NVP) = Sum of present values - Cost of investment

Non-current assets (balance sheet)

Non-current assets = Property, plant, and equipment + Accumulated depreciation

Opening balance (cash flow forecasts)

Opening balance = Closing balance of previous time period

Operating income (for operating leverage)

"Operating income = Gross profit − Operating expenses"

Operating leverage

"Operating leverage = Total contribution / Profit or Operating leverage = Q (P - AVC) / Q (P - AVC) - TFC"

Payback period (linear method)

Payback period = Investment cost / Contribution per month

Predicted outcome (decision tree)

Predicted outcome = Estimated outcome × Probability

Present value (single year)

Present value (single year) = Net cash flow for year × Discount factor

Price elasticity of demand (PED)

"PED = % change in the quantity demanded / % change in price"

Productivity rate

Productivity rate = (Total output / Total input) × 100

Profit

"Profit = (Output × Contribution per unit) - Fixed costs or Profit = Gross Profit - Expenses"

Profit (break-even analysis)

"Profit = Total revenue - Total cost or Profit = [(P - AVC) × Q] - TFC"

Profit before interest and tax (income statement)

Profit before interest and tax = Gross profit - Expenses

Profit before tax (income statement)

Profit before tax = Gross profit - Expenses - Interest

Profit for period (income statement)

Profit for period = Gross profit - Expenses - Interest - Tax

Profit margin (mark- up) per unit

Profit margin per unit = Price - Average total cost

Profit margin (profitability ratio analysis)

"Profit margin = (Profit before interest and tax / Sales revenue) × 100"

Reorder quantity (production planning)

Reorder quantity = Maximum stock level - Buffer stock

Retained earnings (balance sheet)

Retained earnings = Equity - Share Capital

Retained profit (income statement)

Retained profit = Profit after interest and tax - Dividends

Retained surplus (income statement for NPO)

Retained surplus (income statement for non-profit organization) = Surplus for period

Return on capital employed (ROCE)

ROCE = (Profit before interest and tax / Capital employed) × 100

Sales revenue (or Total revenue)

"Sales revenue = Price × Quantity or TR = P × Q"

Stock turnover (number of days)

"Stock turnover (number of days) = (Average stock / Cost of sales) × 365"

Stock turnover (number of times)

Stock turnover ratio (number of times) = Cost of sales / Average stock

Straight line depreciation (annual depreciation)

"Straight line annual depreciation = (Purchase cost - Residual value) / Estimated useful lifespan"

Surplus before interest and tax (income statement for NPO)

Surplus before interest and tax = Gross surplus − Expenses

Surplus before tax (income statement for NPO)

Surplus before tax = Gross surplus − Expenses − Interest

Surplus for period (income statement for NPO)

Surplus for period = Gross surplus − Expenses − Interest − Tax

Target price (break- even analysis)

"Target price = Average Fixed Cost + Average Variable Cost or Target price = AFC + AVC"

Target profit (break- even analysis)

Target profit = (Price × Quantity) - [Fixed cost + (Average variable cost × Quantity)]

Target profit quantity

Target profit quantity = (Fixed cost + Target profit) / (Price - Average Variable Cost)

Total assets (balance sheet)

Total assets = Non-current assets + Current assets

Total contribution (break-even analysis)

Total contribution = Contribution per unit × Output

Total contribution (BMT)

Total contribution = (P - AVC) × Q

Total costs

"Total cost = Total fixed costs + Total variable costs or TC = TFC + TVC"

Total float (critical path analysis)

Total float for task = LFT of task - Duration of task - EST of task

Total liabilities (balance sheet)

Current liabilities + Non-current liabilities

Total revenue (or total sales revenue)

Total revenue = Price × Quantity sold (or P × Q)

Total variable costs (TVC)

"Total variable cost = Total costs - Total variable cost or TVC = TC - TFC"

Unit contribution

Price - Average variable cost (or P - AVC)

Units of production depreciation (depreciation per unit)

Units of production rate = (Cost of asset - Scrap value) / Estimated units of production

Usage rate per time period (production planning)

Usage rate per time period = Stocks used / Time period

Value added per unit

Value added per unit = Price minus Average total costs, i.e., P - ATC

Variances (budgets)

Variance = Actual value - Budgeted value

Working capital (or net current assets)

Working capital = Current assets - Current liabilities