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7. Formulas and ratios

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  1. 7.1. Marketing

    1. 7.1.1

      • Market share = Sales revenue of a business / Total sales revenue for the whole market × 100 = %.

  2. 7.2. Production

    1. 7.2.1Labour productivity

      • Labour productivity = Output per period (units) / Number of employees = units per employee.

    2. 7.2.2Total variable cost

      • Total variable cost = Variable cost per unit × number of units.

    3. 7.2.3Variable cost per unit

      • Variable cost per unit = Total variable cost / Number of units.

    4. 7.2.4Total cost

      • Total cost = Total fixed costs + total variable costs.

    5. 7.2.5Average cost

      • Average cost = Total cost / Number of units.

    6. 7.2.6Break-even output

      • Break-even output = Fixed costs / Contribution per unit.

    7. 7.2.7Contribution per unit

      • Contribution per unit = Selling price per unit - variable cost per unit.

    8. 7.2.8Margin of safety

      • Margin of safety = Actual number of sales - break-even number of sales.

  3. 7.3. Business finance

    1. 7.3.1Revenue

      • Revenue = Selling price per unit × number of units sold.

    2. 7.3.2Gross profit

      • Gross profit = Revenue - cost of sales.

    3. 7.3.3Profit

      • Profit = Total revenue - total costs, or gross profit - expenses.

    4. 7.3.4Working capital

      • Working capital = Current assets - current liabilities.

    5. 7.3.5Profit margin

      • Profit margin = Profit / Revenue × 100 = %.

    6. 7.3.6Gross profit margin

      • Gross profit margin = Gross profit / Revenue × 100 = %.

    7. 7.3.7Return on capital employed (ROCE)

      • ROCE = Profit / Capital employed × 100 = %.

  4. 7.4. Liquidity ratios

    1. 7.4.1Current ratio

      • Current ratio = Current assets : current liabilities, or current assets / current liabilities. Answer can be presented as a ratio : 1 or as a number.

    2. 7.4.2Acid test ratio

      • Acid test ratio = Current assets - inventory : current liabilities, or (current assets - inventory) / current liabilities. Answer can be presented as a ratio : 1 or as a number.