📊 Business Studies Formulas
Complete collection of essential formulas for IGCSE, IB, GCSE, and A-Level Business Studies!
📚 Essential for Exam Success
Business Studies requires mastery of key formulas across finance, operations, and marketing. This comprehensive guide covers all essential calculations needed for IGCSE, IB, GCSE, IGCSE, and A-Level examinations. Understanding when and how to apply each formula is critical for achieving top grades.[web:295][web:296]
📑 Formula Categories
💰 Basic Business Calculations
Revenue (Sales Revenue)
\[\text{Revenue} = \text{Quantity Sold} \times \text{Price per Unit}\]
Total income generated from selling goods or services before any costs are deducted.[web:295]
Total Costs
\[\text{Total Costs} = \text{Fixed Costs} + \text{Variable Costs}\]
Sum of all costs incurred in producing goods or services.[web:296]
Profit (Net Profit)
\[\text{Profit} = \text{Total Revenue} - \text{Total Costs}\]
The amount remaining after all costs are deducted from revenue.[web:295][web:296]
Gross Profit
\[\text{Gross Profit} = \text{Sales Revenue} - \text{Cost of Sales}\]
Profit after direct costs but before operating expenses and overheads.[web:296]
Added Value
\[\text{Added Value} = \text{Selling Price} - \text{Cost of Raw Materials}\]
The increase in value created by the production process.[web:296]
Average Cost per Unit
\[\text{Average Cost} = \frac{\text{Total Costs}}{\text{Total Output}}\]
The cost of producing one unit on average.[web:296]
⚖️ Break-Even Analysis
Understanding Break-Even Point
The break-even point is where total revenue equals total costs—the business makes neither profit nor loss. This is crucial for pricing decisions and understanding minimum sales targets.[web:301][web:304]
Contribution per Unit
\[\text{Contribution} = \text{Selling Price} - \text{Variable Cost per Unit}\]
Amount each unit contributes toward covering fixed costs and generating profit.[web:296][web:304]
Break-Even Point (Units)
\[\text{Break-Even} = \frac{\text{Fixed Costs}}{\text{Contribution per Unit}}\]
Number of units that must be sold to cover all costs.[web:296][web:301][web:304]
Margin of Safety
\[\text{Margin of Safety} = \text{Actual Output} - \text{Break-Even Output}\]
How much output can fall before the business makes a loss.[web:296]
Break-Even Revenue ($)
\[\text{Break-Even Revenue} = \text{Break-Even Units} \times \text{Selling Price}\]
Total revenue needed to break even expressed in monetary terms.[web:304]
📈 Profitability Ratios
Measuring Business Performance
Profitability ratios show how efficiently a business generates profit relative to revenue, assets, or investment. Higher percentages generally indicate better performance.[web:300][web:306]
Gross Profit Margin (%)
\[\text{Gross Profit Margin} = \frac{\text{Gross Profit}}{\text{Sales Revenue}} \times 100\]
Percentage of revenue retained after direct costs. Shows pricing power and production efficiency.[web:296][web:300]
Net Profit Margin (%)
\[\text{Net Profit Margin} = \frac{\text{Net Profit}}{\text{Sales Revenue}} \times 100\]
Percentage of revenue retained as profit after ALL expenses. Overall profitability measure.[web:296][web:300]
💧 Liquidity Ratios
Measuring Short-Term Financial Health
Liquidity ratios assess a business's ability to pay short-term debts with available assets. Critical for understanding cash flow health and avoiding insolvency.[web:300][web:303]
Current Ratio
\[\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}\]
Ability to pay short-term debts with current assets. Expressed as ratio, not percentage.[web:296][web:300][web:303]
Acid Test Ratio (Quick Ratio)
\[\text{Acid Test} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}\]
Stricter liquidity measure excluding inventory (which takes time to convert to cash).[web:296][web:300][web:303]
