IB Business Finance Formulae

Labour turnover

# of staff leaving over a year
————————————————— x 100
average # of staff employed in a year

Variable costs

average variable cost x quantity

total cost

fixed cost + variable cost

Sales revenue

price x quantity sold

average revenue

Total revenue
——————
Quantity

Contribution (total and per unit)

Definition → money left over after variable costs have been subtracted from revenue. the money contributes towards fixed costs and profit

Contribution per unit = selling price - average variable cost

Total contribution = total revenue - total variable costs

Break-even point

Fixed costs
—————————-
Contribution per unit

Break-even price (how much you need to charge to break-even)

Total cost
—————
Output

Target profit (how many units of output need to be produced to generate a certain level of profit)

Fixed costs + target profit
Q = ————————————
Contribution per unit

Margin of safety

Current level of output — break-even output

Profit-loss account

Sales revenue — COGS = Gross profit
|
Gross profit — Expenses = Net profit before interest & tax
|
Net profit before interest & tax — Interest = Net profit before tax
|
Net profit before tax — Tax = Net profit after interest & tax
|
Net profit after interest & tax — Dividends = Retained profit

Balance sheet

Non-Current Assets:
- property/equipment
- accumulated depreciation (-)

Current Assets:
- cash
- debtors
- stock

Total Assets = Current Assets + Non-Current Assets

Current Liabilities:
- bank overdraft
- trade creditors
- short-term loans

Non-Current Liabilities:
- long-term loans

Total Liabilities = Current Liabilities + Non-Current Liabilities

Net Assets = Total Assets — Total Liabilities

Equity:
- share capital
- retained profit

Net Assets = Equity

Depreciation (straight line method)

original cost — residual value
—————————————
expected life (years)

Cash flow forecasts

Opening balance (previous month’s closing balance)

Cash Inflows:
- cash sales revenue
- other income
Total inflows =

Cash Outflows:
- stock
- labour costs
- other costs
Total outflows =

Net Cash Flow = Total inflows — Total outflows
Closing Balance = opening balance + net cash flow

Payback period

Payback in last negative year
——————————————— x 12 = months
Net cash flow in first positive year

Average rate of return

Net Present Value (discount)

Variance

actual outcome — budgeted outcome

Time series analysis

attempts to predict sales levels by identifying the underlying trend from a sequence of actual sales figures recorded at regular intervals

3 point moving average = sales month 1, 2, 3
3

Variation = sales — 3-point moving average

Decision Tree: Expected value

Expected Value = ((FR x PS) + (FR x PF)) - cost

where,
FR = forecasted revenue
PS = probability of success
PF = probability of failure
cost = cost of the option

Labour productivity rate

total output
———————— x 100
number of workers

Cost to buy

price x quantity

cost to make

fixed costs + (average variable cost x quantity)