Equations

1. Revenue & costs

Revenue

Revenue = Selling price × Quantity sold

Total costs

Total costs = Fixed costs + Variable costs

Variable costs

Total variable costs = Variable cost per unit × Quantity produced

Average cost

Average cost = Total costs ÷ Quantity produced

2. Profit

Profit

Profit = Total revenue − Total costs

Profit margin

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

3. Break-even

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

4. Profitability ratios

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

5. Cash flow

Net cash flow

Net cash flow = Cash inflows − Cash outflows

Closing balance

Closing balance = Opening balance + Net cash flow

6. ARR

Average rate of return (ARR)

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

Where:

Average annual profit = Total profit over investment period ÷ Number of years

7. Interest

Interest on a loan

Interest = Amount borrowed × Interest rate

If the interest rate is given as a percentage, remember to divide it by 100.

8. Percentage change

Percentage change = (Change ÷ Original amount) × 100

9. Market share

Market share

Market share (%) = (Business’s sales ÷ Total market sales) × 100

10. Capacity utilisation

Capacity utilisation

Capacity utilisation (%) = (Current output ÷ Maximum possible output) × 100