Equations

Revenue

Revenue = Selling price × Quantity sold

Total costs

Total costs = Fixed costs + Variable costs

Total variable costs

Total variable costs = Variable cost per unit × Quantity produced

Average cost

Average cost = Total costs ÷ Quantity produced

Profit

Profit = Total revenue − Total costs

Profit margin

Profit margin (%) = (Profit ÷ Revenue) × 100

Contribution per unit

Contribution per unit = Selling price − Variable cost per unit

Break-even output

Break-even output = Fixed costs ÷ Contribution per unit

Margin of safety

Margin of safety = Actual output − Break-even output

Gross profit

Gross profit = Revenue − Cost of sales

Gross profit margin

Gross profit margin (%) = (Gross profit ÷ Revenue) × 100

Operating profit

Operating profit = Gross profit − Expenses

Operating profit margin

Operating profit margin (%) = (Operating profit ÷ Revenue) × 100

Net cash flow

Net cash flow = Cash inflows − Cash outflows

Closing balance

Closing balance = Opening balance + Net cash flow

Average rate of return (ARR)

ARR (%) = (Average annual profit ÷ Initial investment) × 100

Interest on a loan

Interest = Amount borrowed × Interest rate