Key Business Calculations and Performance Metrics

Revenue and Cost Formulas

• Revenue = Selling price per unit × Number of units sold
• Variable costs = Variable cost per unit × Number of units sold
• Total costs = Fixed costs + Variable costs
• Profit = Total revenue − Total costs or Total contribution − Fixed costs

Market and Investment Metrics

• Market capitalisation = Number of issued shares × Current share price
• Expected value (A & B) = (Pay-off of A × Probability of A) + (Pay-off of B × Probability of B)
• Net gain = Expected value − Initial cost of decision
• Market growth (%) = (Change in market size / Original market size) × 100
• Market share (%) = (Sales of one product or business / Total sales in the market) × 100
• Added value = Sales revenue − Cost of bought-in goods and services

Operational Efficiency

• Labour productivity = Output over a time period / Number of employees
• Unit costs (average costs) = Total costs / Number of units of output
• Capacity utilisation (%) = (Actual output / Maximum possible output) × 100
• Return on investment (%) = (Profit from investment / Cost of investment) × 100

Profitability and Margins

• Gross Profit = Revenue − Cost of Sales
• Operating profit = Gross profit − Operating Expenses
• Profit for year = Operating profit + Profit from other activities − Net finance costs − Tax
• Gross profit margin (%) = (Gross profit / Revenue) × 100
• Operating profit margin (%) = (Operating profit / Revenue) × 100
• Profit for year margin (%) = (Profit for year / Revenue) × 100

Break-even and Contribution

• Variance = Budgeted figure − Actual figure
• Contribution per unit = Selling price − Variable costs per unit
• Total contribution = Contribution per unit × Units sold or Total revenue − Total variable costs
• Break-even output = Fixed costs / Contribution per unit
• Margin of safety = Actual level of output − Break-even level of output

Human Resources Metrics

• Labour turnover (%) = (Number of staff leaving / Number of staff employed) × 100
• Employee retention rate (%) = (Employees who remained for the period / Employees at start of period) × 100
• Employee costs as % of turnover = (Employee costs / Turnover) × 100
• Labour cost per unit = Labour costs / Units of output

Financial Ratios and Liquidity

• Return on capital employed (ROCE) (%) = (Operating profit / Capital employed) × 100
• Current ratio = Current assets / Current liabilities
• Gearing (%) = (Non-current liabilities / Capital employed) × 100
• Payables days = (Payables / Cost of sales) × 365
• Receivables days = (Receivables / Revenue) × 365
• Inventory turnover = Cost of sales / Average inventories held
• Average rate of return (%) = (Average annual return / Initial cost of project) × 100

Note: For ROCE and Gearing, Capital employed = Total equity + Non-current liabilities.