Essential Business Formulas and Financial Ratios

Market Analysis and Demand Metrics

• Market Size by Value: Total volume of sales × Average market price
• Market Size by Value: (Business sales / % Market share) × 100
• Market Share: (Value of firm A's sales / Value of total market sales) × 100
• Market Growth: (Change in size of market by value / Original size of market by value) × 100
• Price Elasticity of Demand (PED): Percentage change in quantity demanded / Percentage change in price
• Income Elasticity of Demand: Percentage change in quantity demanded of Good A / Percentage change in consumers' real income

Revenue, Costs, and Profitability

• Total Revenue: Average selling price × Quantity sold
• Total Costs: Total fixed costs + Total variable costs
• Average (Unit) Costs: Total costs / Number of items produced
• Profit: Total revenue - Total costs
• Profit Margin: Selling price - Unit cost
• Operating Profits: Gross profit - Expenses
• Variance: Actual figures - Budget figures

Contribution and Break-Even Analysis

• Unit Contribution: Selling price - Variable cost per unit
• Total Contribution: Total revenue - Total variable costs
• Total Contribution: (Selling price - Unit direct costs) × Output or units sold
• Change in Contribution: (Contribution in time period 2 - Contribution in time period 1) OR (Additional revenue - Additional variable costs)
• Break-Even Output: Fixed costs of the business / Contribution per unit

Financial Performance and Investment Ratios

• Gross Profit Margin: (Gross profits / Revenue) × 100
• Operating Profit Margin: (Operating profit / Revenue) × 100
• Return on Capital Employed (ROCE): [Operating profit / (Total equity + Non-current liabilities)] × 100
• Return on Equity (ROE): (Operating profit / Total equity) × 100
• Dividend Per Share (DPS): Total dividends / Number of shares issued
• Earnings Per Share (EPS): Net profit after tax / Number of shares
• Dividend Yield (DY): (Dividend per share / Market price) × 100
• Price Earnings Ratio (P/E): Market price / Earnings per share

Liquidity, Efficiency, and Human Resources

• Current Ratio: Current assets / Current liabilities
• Acid Test Ratio: (Current assets - Inventories) / Current liabilities
• Inventory Turnover: Cost of sales / Average inventories held
• Payback Period: (Income required / Net cash flow for the year) × 12 months
• Labour Turnover: (Number of leavers last year / Average number of employees that year) × 100
• Labour Costs: Total direct labour costs / Total units produced
• Total Productivity: Output per time period / Number of employees