Business & ManagementCambridge IGCSE

Business Studies formulae

Here are some essential business mathematics formulas that you might find useful....
Business Studies formulae

📊 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 Calculations
📈 Profitability Ratios
💧 Liquidity Ratios
⚖️ Break-Even Analysis
💵 Cash Flow
⚙️ Efficiency Ratios

💰 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]

Business Studies formulae
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