Business equations

Revenue

Selling price per unit x quantity of units sold

Total variable costs

Variable cost per unit x number of units sold

Total costs

Fixed costs + variable costs

Profit

Total revenue - total costs or

(Number of Sales x price) - costs

Market capitalisation

Number of issued shares x Current share price

Interest rates

Calculated as a percentage of the amount borrowed

Expected value of an outcome

Probability of the outcome occurring x the pay-off the business can expect to get

Expected value of a course of action

Add the Ev’s of different outcomes together

Net gain

Expected value - initial costs

Market growth (%)

(New Market size - old market size / old market size) x 100

Market share (%)

(Sales / total market size) x 100

Sales growth (%)

(Sales this year - Sales last year / Sales last year) x 100

Price elasticity of demand

% change in quantity demanded / % change in price

Sales revenue

Price of product x quantity sold

Income elasticity of demand

% change in quantity demanded / % change in real income

Added value

sales revenue - cost of bought-in goods and services

Capacity utilisation (%)

(Output / capacity) x 100

Unit cost

Total costs / units output

Labour productivity

Output per period / number of employees

Re-order level

Lead Time (in days) x average daily usage + buffer stock level

Return on investment (%)

(Return on investment (£) / cost of investment (£) ) x 100

Percentage change in profit

(Current year’s profit - previous years profit / previous years profit) x 100

Gross profit

Sales revenue - cost of sales

Operating profit

Sales revenue - cost of sales - operating expenses

Profit for the year

Operating profit + other profit - net finance costs - tax

Gross profit margin (%)

(Gross profit / sales revenue) x 100

Operating profit margin (%)

(Operating profit / sales revenue) x 100

Profit for the year margin (%)

(Profit for the year / sales revenue) x 100

Contribution per unit

Selling price per unit - variable costs per unit

Total contribution

Total revenue - total variable costs or

Contribution per unit x number of units sold

Break-even output

Fixed costs / contribution per unit

Margin of safety

Actual output - break-even output

Labour cost per unit

Labour costs / units of output