Formulas

A complete set of vocabulary flashcards covering formulas, definitions, and key concepts across IGCSE Business Units 1 to 5.

Market Share

The proportion of total market sales achieved by one business. Increased market share can bring about benefits such as increased customer loyalty and setting up of brand image. Formula: $\text{Market Share} = \left(\frac{\text{Total sales of the business}}{\text{Total sales of the market}}\right) \times 100$

Productivity

Shows how efficiently resources are used, found by dividing the total output by the quantity of input used in production. Formula: $\text{Productivity} = \frac{\text{Output}}{\text{Quantity of Input}}$

Labor Productivity

Assesses how efficiently labor is used, calculated by dividing total output by the number of employees. Formula: $\text{Labor Productivity} = \frac{\text{Output}}{\text{Number of Employees}}$

Revenue

Measures the total income generated from selling goods or services, calculated by multiplying the quantity sold by the price per unit. Formula: $\text{Revenue} = \text{Quantity Sold} \times \text{Price}$

Total Costs

The overall expenses to produce goods or services, determined by adding fixed costs to variable costs. Formula: $\text{Total Costs} = \text{Fixed Costs} + \text{Variable Costs}$

Average Cost

Shows the cost per unit produced, calculated by dividing total costs by the number of units produced. Formula: $\text{Average Cost} = \frac{\text{Total Costs}}{\text{Total Units Produced}}$

Profit

Measures the financial gain from business activities, found by subtracting the total cost from total revenue. Shows how much profit is made after covering all costs. Formula: $\text{Profit} = \text{Revenue} - \text{Total Cost}$

Break-even Point

The point where a business covers its fixed costs, calculated as fixed costs divided by the contribution per unit. Formula: $\text{Break-even Point} = \frac{\text{Fixed Costs}}{\text{Contribution per Unit}}$

Contribution per Unit

Measures the profit made on each unit sold after deducting variable costs from the selling price. Formula: $\text{Contribution per Unit} = \text{Selling Price} - \text{Variable Costs}$

Margin of Safety

Indicates how much actual production exceeds the break-even point, providing a buffer before losses start. Formula: $\text{Margin of Safety} = \text{Maximum Output} - \text{Break-even Output}$

Gross Profit

Shows the profit from sales after deducting the cost of goods sold (direct costs). Formula: $\text{Gross Profit} = \text{Revenue} - \text{Cost of Sales}$

Gross Profit Margin

Expresses the gross profit as a percentage of revenue, showing profitability before other expenses. Formula: $\text{Gross Profit Margin} = \left(\frac{\text{Gross Profit}}{\text{Revenue}}\right) \times 100$

Net Profit

Represents the total profit after all expenses, both fixed and variable, are deducted from gross profit. Formula: $\text{Net Profit} = \text{Gross Profit} - \text{Expenses}$

Net Profit Margin

Indicates how much of the revenue remains as profit after all expenses, expressed as a percentage. Formula: $\text{Net Profit Margin} = \left(\frac{\text{Net Profit}}{\text{Revenue}}\right) \times 100$

Return on Capital Employed (ROCE)

Shows how efficiently the company generates profit from its capital investments. Formula: $\text{ROCE} = \left(\frac{\text{Net Profit}}{\text{Capital Employed}}\right) \times 100$

Working Capital

Indicates the short-term financial health of a business, showing the difference between current assets and current liabilities. Formula: $\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$

Capital Employed (or Shareholder's funds)

Represents the total capital invested in the business, calculated as total assets minus total liabilities. Formula: $\text{Capital Employed} = \text{Total Assets} - \text{Total Liabilities}$

Current Ratio

A liquidity measure that compares current assets to current liabilities to assess the ability to meet short-term obligations. Formula: $\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$

Acid Test Ratio (or Quick Ratio)

A stricter liquidity measure that excludes inventory from assets to assess whether a company can meet short-term liabilities without selling inventory. Formula: $\text{Acid Test Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}$

Cash Inflow

Total of all sales and other sources of finance received during a period of time. Calculated by adding sales revenue and overdrafts (if any).

Cash Outflow

Total of all expenses incurred during a period of time. Calculated by adding rent, wages, salary, utility bills, maintenance expenses, transportation cost, and loan repayment (EMI). Note: tax is not included as it is a yearly payment that appears on the income statement.

Netflow

Subtract cash outflow from cash inflow. If the number is negative then it should be put in brackets. Formula: $\text{Netflow} = \text{Cash Inflow} - \text{Cash Outflow}$

Opening Balance

Money available at the beginning of the month - it is the closing balance that is carried forward from the previous month.

Closing balance

Calculated as opening balance plus netflow. If the number is negative then it should be written in brackets. Formula: $\text{Closing balance} = \text{Opening balance} + \text{Netflow}$

Market Share

The proportion of total market sales achieved by one business. Formula: $\text{Market Share} = \left(\frac{\text{Total sales of the business}}{\text{Total sales of the market}}\right) \times 100$

Productivity

Shows how efficiently resources are used, found by dividing total output by the quantity of input used in production. Formula: $\text{Productivity} = \frac{\text{Output}}{\text{Quantity of Input}}$

Labor Productivity

Assesses how efficiently labor is used, calculated by dividing total output by the number of employees. Formula: $\text{Labor Productivity} = \frac{\text{Output}}{\text{Number of Employees}}$

Revenue

Measures the total income generated from selling goods or services, calculated by multiplying quantity sold by price per unit. Formula: $\text{Revenue} = \text{Quantity Sold} \times \text{Price}$

Total Costs

The overall expenses to produce goods or services, determined by adding fixed costs to variable costs. Formula: $\text{Total Costs} = \text{Fixed Costs} + \text{Variable Costs}$

Average Cost

Shows the cost per unit produced, calculated by dividing total costs by the number of units produced. Formula: $\text{Average Cost} = \frac{\text{Total Costs}}{\text{Total Units Produced}}$

Profit

Measures the financial gain from business activities, found by subtracting total cost from total revenue. Formula: $\text{Profit} = \text{Revenue} - \text{Total Cost}$

Break-even Point

The point where a business covers its fixed costs, calculated as fixed costs divided by contribution per unit. Formula: $\text{Break-even Point} = \frac{\text{Fixed Costs}}{\text{Contribution per Unit}}$

Contribution per Unit

Measures the profit made on each unit sold after deducting variable costs from the selling price. Formula: $\text{Contribution per Unit} = \text{Selling Price} - \text{Variable Costs}$

Margin of Safety

Indicates how much actual production exceeds the break-even point, providing a buffer before losses start. Formula: $\text{Margin of Safety} = \text{Maximum Output} - \text{Break-even Output}$

Gross Profit

Shows the profit from sales after deducting the cost of goods sold (direct costs). Formula: $\text{Gross Profit} = \text{Revenue} - \text{Cost of Sales}$

Gross Profit Margin

Expresses the gross profit as a percentage of revenue, showing profitability before other expenses. Formula: $\text{Gross Profit Margin} = \left(\frac{\text{Gross Profit}}{\text{Revenue}}\right) \times 100$

Net Profit

Represents the total profit after all expenses, both fixed and variable, are deducted from gross profit. Formula: $\text{Net Profit} = \text{Gross Profit} - \text{Expenses}$

Net Profit Margin

Indicates how much of the revenue remains as profit after all expenses, expressed as a percentage. Formula: $\text{Net Profit Margin} = \left(\frac{\text{Net Profit}}{\text{Revenue}}\right) \times 100$

Return on Capital Employed (ROCE)

Shows how efficiently the company generates profit from its capital investments. Formula: $\text{ROCE} = \left(\frac{\text{Net Profit}}{\text{Capital Employed}}\right) \times 100$

Working Capital

Indicates the short-term financial health of a business, showing the difference between current assets and current liabilities. Formula: $\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$

Capital Employed (or Shareholder's funds)

Represents the total capital invested in the business, calculated as total assets minus total liabilities. Formula: $\text{Capital Employed} = \text{Total Assets} - \text{Total Liabilities}$

Current Ratio

A liquidity measure that compares current assets to current liabilities to assess the ability to meet short-term obligations. Formula: $\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}$

Acid Test Ratio (or Quick Ratio)

A stricter liquidity measure that excludes inventory from assets to assess whether a company can meet short-term liabilities without selling inventory. Formula: $\text{Acid Test Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}$

Cash Inflow

Total of all sales and other sources of finance received during a period of time. Formula: Add sales revenue + overdrafts (if any).

Cash Outflow

Total of all expenses paid during a period of time, including rent, wages, salary, utility bills, maintenance expenses, transportation cost, and loan repayment (EMI). Tax is excluded as a yearly payment on the income statement.

Netflow

Calculated by subtracting cash outflow from cash inflow; if negative, the number should be put in brackets. Formula: $\text{Netflow} = \text{Cash Inflow} - \text{Cash Outflow}$

Opening Balance

Money available at the beginning of the month - it is the closing balance that is carried forward from the previous month.

Closing Balance

The final balance calculated as opening balance plus netflow; if negative, the number should be written in brackets. Formula: $\text{Closing Balance} = \text{Opening Balance} + \text{Netflow}$