Business equations
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52 Terms
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Sales Revenue or Turnover
selling price per unit x quantity of units sold
2
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Total Variable costs
variable cost per unit x number of units sold
3
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Total costs
fixed costs + variable costs
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Profit
total revenue - total costs
5
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Market Capitalisation
numbers of issued shares x current share price
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Expected Value of a decision with two possible outcomes
(Pay-off of A × probability of A) + (Pay-off of B × probability of B)
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Net Gain
expected value - initial costs
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Market Growth (%)
new market size - old market size
\--------------------------------------- x 100
old market size
\--------------------------------------- x 100
old market size
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Market Share (%)
sales
\------------------- x 100
total market size
\------------------- x 100
total market size
10
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Sales Growth (%)
sales this year - sales last year
\---------------------------------- x 100
sales last year
\---------------------------------- x 100
sales last year
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Price Elasticity of Demand (PED)
% change in quantity demanded
\------------------------------------- x 100
% change in price
\------------------------------------- x 100
% change in price
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Income Elasticity of Demand YED)
% change in quantity demanded
\------------------------------------- x 100
% change in real income
\------------------------------------- x 100
% change in real income
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Capacity Utilisation (%)
output
\------------ x 100
capacity
\------------ x 100
capacity
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Unit cost
total costs
\------------
units output
\------------
units output
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Labour Productivity
output per period
\------------------------
number of employees
\------------------------
number of employees
16
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Re-order level
lead time (in days) x average daily usage + buffer stock level
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Return on Investment (%) (ROI)
return on investment (£)
\---------------------------- x 100
cost of investment (£)
\---------------------------- x 100
cost of investment (£)
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Percentage Change in Profit
current year’s profit - previous year’s profit
\----------------------------------------------- x 100
previous year’s profit
\----------------------------------------------- x 100
previous year’s profit
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Gross Profit
sales revenue - cost of sales
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Operating Profit
sales revenue - cost of sales (gross profit) - operating expenses
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Profit for the year
operating profit + other profit - net finance - tax
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Gross Profit Margin (%)
gross profit
\--------------- x 100
sales revenue
\--------------- x 100
sales revenue
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Operating Profit Margin (%)
operating profit
\------------------- x 100
sales revenue
\------------------- x 100
sales revenue
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Profit for the Year (%)
profit for the year
\-------------------- x 100
sales revenue
\-------------------- x 100
sales revenue
25
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Variance
budgeted figure - actual figure
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Contribution per unit
selling price per unit - variable costs per unit
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Total contribution (2)
total revenue - total variable costs
OR
contribution per unit x number of units sold
OR
contribution per unit x number of units sold
28
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Break-even output
fixed costs
\-----------------------
contribution per unit
\-----------------------
contribution per unit
29
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Margin of Saftey
actual output - break-even output
30
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Labour productivity
output per period
\------------------------
number of employees
\------------------------
number of employees
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Labour cost per unit
labour costs
\----------------
units of output
\----------------
units of output
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Employee costs as a % of turnover
employee costs
\------------------ x 100
sales turnover
\------------------ x 100
sales turnover
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Labour turnover (%)
number of staff leaving
\--------------------------------------- x 100
average number of staff employed
\--------------------------------------- x 100
average number of staff employed
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Labour retention (%)
number of staff employed at end of period - number of leavers
\------------------------------------------------------------ x100
number of staff employed at start of period
\------------------------------------------------------------ x100
number of staff employed at start of period
35
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Net current assets
current assets - current liabilities
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Net assets
net current assets + non-current assets - non-current liabilities
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Working capital
current assets - current liabilities
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Profit before tax
operating profit - other expenses
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Profit after tax
profit before tax - tax
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Retained profit
profit after tax - dividends
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Current ratio
current assets
\-------------------
current liabilities
\-------------------
current liabilities
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Acid Test Ratio
current assets - inventories
\------------------------------
current liabilities
\------------------------------
current liabilities
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Return on capital employed (%) (ROCE)
operating profit
\----------------------------------------------------------- x 100
total equity + non-current liabilities (capital employed)
\----------------------------------------------------------- x 100
total equity + non-current liabilities (capital employed)
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Inventory turnover
cost of sales
\--------------------------
cost of average stock held
\--------------------------
cost of average stock held
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Payables Days
payables
\--------------- x 365
cost of sales
\--------------- x 365
cost of sales
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Receivables Days
receivables
\--------------- x 365
sales revenue
\--------------- x 365
sales revenue
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Gearing (%)
non-current liabilities
\----------------------------------------------------------- x 100
total equity + non-current liabilities (capital employed)
\----------------------------------------------------------- x 100
total equity + non-current liabilities (capital employed)
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GDP
total consumer spending + business investment + government spending + the value of exports - the value of imports
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Average Rate of Return (%) (ARR)
average net return
\----------------------- x 100
investment
\----------------------- x 100
investment
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Payback Period
amount invested
\--------------------
annual net return
\--------------------
annual net return
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Net cashflow
cash inflow - cash outflow
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Absenteeism
number work days lost through absence
\----------------------------------------------- x 100
total possible days worked
\----------------------------------------------- x 100
total possible days worked