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IGCSE Business Equations Guide

This document defines 26 business equations used to calculate key financial metrics. Equations are provided to calculate metrics such as market share, price elasticity of demand, labor productivity, contribution, break-even point, net profit margins, current ratios, return on capital employed, and percentage change. Formulas are given to determine values expressed as percentages, units, or currency amounts depending on the specific calculation.

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1K views2 pages

IGCSE Business Equations Guide

This document defines 26 business equations used to calculate key financial metrics. Equations are provided to calculate metrics such as market share, price elasticity of demand, labor productivity, contribution, break-even point, net profit margins, current ratios, return on capital employed, and percentage change. Formulas are given to determine values expressed as percentages, units, or currency amounts depending on the specific calculation.

Uploaded by

Pox Suksawad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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IGCSE Business Equations

Equation Formula Expressed Comment


as..
1. Market 𝑆𝑎𝑙𝑒𝑠 𝑜𝑓 𝑡ℎ𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦 % High Market Share can
Share × 100 lead to Economies of
𝑇𝑜𝑡𝑎𝑙 𝑀𝑎𝑟𝑘𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
Scale.

2. Market 𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠 𝑏𝑒𝑡𝑤𝑒𝑒𝑛 2 𝑦𝑒𝑎𝑟𝑠 % Can indicate position in


Growth 𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙 (𝑡ℎ𝑒 𝑓𝑖𝑟𝑠𝑡 𝑦𝑒𝑎𝑟 𝑜𝑢𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑡𝑤𝑜) Product Life Cycle.
× 100 The same formula is
used to calculate a
percentage change.
3. Price % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑑𝑒𝑚𝑎𝑛𝑑 (-) x x>1 price elastic
Elasticity of % 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒
Demand x<1 price inelastic
4. Labour 𝑂𝑢𝑡𝑝𝑢𝑡 Units A measure of motivation.
Productivity 𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 Higher is better.
5. Average 𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 $ Should reduce if
Cost per 𝑁𝑜. 𝑜𝑓 𝑤𝑜𝑟𝑘𝑒𝑟𝑠 productivity increases.
Employee Low is good.

6. 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑝𝑟𝑖𝑐𝑒 − 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡 $


Contribution

7. Break 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡 Units Low is good. Remember


Even Point 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 the limitations of Break
Even Analysis
8. Predicted (𝑜𝑢𝑡𝑝𝑢𝑡 × 𝑐𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛) − 𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡𝑠 $ Remember, this is only a
Profit from prediction.
Break Even
Data

9. Margin of 𝑂𝑢𝑡𝑝𝑢𝑡 − 𝐵𝑟𝑒𝑎𝑘 𝐸𝑣𝑒𝑛 𝑃𝑜𝑖𝑛𝑡 Units Output could be given as


Safety capacity.

10. Net Cash 𝑇𝑜𝑡𝑎𝑙 𝑐𝑎𝑠ℎ 𝑖𝑛𝑓𝑙𝑜𝑤 − 𝑇𝑜𝑡𝑎𝑙 𝑐𝑎𝑠ℎ 𝑜𝑢𝑡𝑓𝑙𝑜𝑤 $ Shows how much cash
Flow has been made in a
month.

11. Closing 𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 + 𝑁𝑒𝑡 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 $ If negative, the business
Balance will need an overdraft.

12. Opening 𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 𝑖𝑛 𝐴𝑝𝑟𝑖𝑙 $


Balance in
May

13. Gross 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠 $ High is good, shows how


Profit much money is left, after
direct costs have been
paid.

ADN 2011
14. Gross 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 % High is good, will vary
Profit × 100 for different industries.
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
Margin

15. Net 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 − 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠 $ High is good, shows how


Profit before much money is left, after
Tax all costs have been paid.
16. Net 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥 % Over 10% is good.
Profit × 100
𝑅𝑒𝑣𝑒𝑛𝑢𝑒
Margin

17. Net 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥 − 𝑇𝑎𝑥𝑎𝑡𝑖𝑜𝑛 $


Profit After
Tax
18. Retained 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝐴𝑓𝑡𝑒𝑟 𝑇𝑎𝑥 − 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 $ Used to reinvest in the
Profit business.
19. Net 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑡𝑖𝑒𝑠 $ Also called “Working
Current Capital.”
Assets

20. Net 𝑁𝑜𝑛 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 $ “Balances,” with Total
Assets Capital Employed. Non
Current Assets are also
called Fixed Assets.
21. Current 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 :1 About 1.5 to 2.0 is ideal.
Ratio 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

22. Acid 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 :1 Must be over 1.0.


Test Ratio 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 Inventory is another
word for stocks.
23. R.O.C.E. 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑏𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥 % Show how attractive an
× 100 investment is, over 10%
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑
is good.
24. Gearing 𝑁𝑜𝑛 − 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 % Over 100% is considered
Ratio × 100 highly geared.
𝑆ℎ𝑎𝑟𝑒 𝐶𝑎𝑝𝑖𝑡𝑎𝑙

25. Added 𝑆𝑒𝑙𝑙𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒 − 𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝐶𝑜𝑠𝑡𝑠 $ Formula is never directly


Value tested, but you must be
aware of how added
value can be increased.
26. 𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑐𝑒 %
Percentage × 100
𝑂𝑟𝑖𝑔𝑖𝑛𝑎𝑙
Change

Notes

 If the question asks for “Value,” your answer must be in a unit of currency, for example $
 If the question asks for “Volume,” your answer must be expressed as a unit of output.

ADN 2011

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