Every formula.Where it comes from.
The 94 formulas the chapters use, with 43 of their worked examples, chapter by chapter. Each links back to the concept that explains it. Print it, or keep it open beside a problem.
Unit 1Business Management and Managerial Economics
Organisation Structure
How wide a span: Graicunas and Urwick
- Formula
- R = n [2n−1 + n − 1]
Business Economics and Demand
Demand
- Formula
- Effective demand = desire + ability to pay + willingness to pay
The demand function
- Formula
- Dx = f(Px, Pr, Y, T, E, N, A)
Demand forecasting
- Worked example
- a = ΣY ÷ n = 250 ÷ 5 = 50 · b = ΣTY ÷ ΣT² = 54 ÷ 10 = 5.4
Elasticity of Demand
Measuring elasticity: PED, YED and XED
- PED, price elasticity
- % change in quantity demanded ÷ % change in price
- YED, income elasticity
- % change in quantity demanded ÷ % change in income
- XED, cross elasticity
- % change in quantity of A ÷ % change in price of B
Methods of measuring price elasticity
- Formula
- e = (ΔQ ÷ Q) ÷ (ΔP ÷ P) = (ΔQ ÷ ΔP) × (P ÷ Q)
- Formula
- e = [(Q₂ − Q₁) ÷ ((Q₁ + Q₂) ÷ 2)] ÷ [(P₂ − P₁) ÷ ((P₁ + P₂) ÷ 2)]
Utility Analysis
Total and marginal utility
- Formula
- TUₙ = MU₁ + MU₂ + … + MUₙ MUₙ = TUₙ − TUₙ₋₁
Law of equi-marginal utility
- Formula
- MU₁ ÷ P₁ = MU₂ ÷ P₂ = MU₃ ÷ P₃ = MU of a rupee
Consumer surplus
- Formula
- Consumer surplus = total utility in money − total expenditure
Indifference Curve Analysis
Marginal rate of substitution (MRS)
- Formula
- MRSxy = −ΔY ÷ ΔX = MUx ÷ MUy
Budget line
- Formula
- Px × X + Py × Y = M slope = −Px ÷ Py
Consumer equilibrium
- Formula
- MRSxy = Px ÷ Py
Market Structures
Revenue: total, average and marginal
- Formula
- TR = P × Q · AR = TR ÷ Q = P · MR = ΔTR ÷ ΔQ = TRn − TRn−1
- Formula
- MR = AR × (1 − 1 ÷ e)
National Income and Inflation
Concepts and formulas
- GDP
- C + I + G + (X − M): consumption, investment, government expenditure, exports minus imports
- GNP
- GDP + net factor income from abroad (NFIA)
- NNP
- GNP − depreciation
- National income
- NNP at market price − indirect taxes + subsidies
- Personal income
- NI − undistributed profits − corporate taxes + transfers
- Disposable income
- PI − personal taxes
- Per capita income
- NI ÷ population
Measuring inflation
- Formula
- CPI = current basket price ÷ base price × 100 · WPI = current wholesale price ÷ base price × 100 · GDP deflator = nominal GDP ÷ real GDP × 100
- Worked example
- Inflation = (126 − 120) ÷ 120 × 100 = 5%
Unit 2Organisational Behaviour and Human Resource Management
Values, Learning and Motivation
What shapes individual behaviour
- Formula
- B = f(P, E): behaviour is a function of the person and the environment
Motivation
- Formula
- Motivation = Expectancy × Instrumentality × Valence
Human Resource Planning
The HRP process
- Formula
- Forecast supply = present staff − expected leavers − promotions and transfers out + promotions and transfers in
- Formula
- Net requirement = forecast demand − forecast supply
Methods of supply analysis
- Formula
- Labour turnover rate = separations during the period ÷ average number of employees × 100
Training and Development
The training process
- Formula
- Training ROI (%) = (benefit − cost) ÷ cost × 100
Job Analysis, Evaluation and Design
Job design
- Formula
- MPS = [(skill variety + task identity + task significance) ÷ 3] × autonomy × feedback
Compensation Management
Components of the pay package
- Worked example
- Take-home salary = gross salary − deductions = 48,000 − 6,200 = ₹41,800
Incentive plans
- Formula
- Halsey: Earnings = T × R + 50% × (S − T) × R
- Formula
- Rowan: Earnings = T × R + ((S − T) ÷ S) × T × R
Strategic Human Resource Management
Components and objectives of SHRM
- Formula
- SHRM = people capability + HR systems + strategic direction
Wage Determination, Profit Sharing and Payment-by-Results Plans
Taylor, Merrick and Bedaux plans
- Formula
- Earnings = T × R + 75% × (S − T) × R
Unit 4Managerial Accounting
Accounting Principles: Concepts, Conventions and Standards
Realisation, accrual and matching
- Worked example
- Revenue − expenses = profit: ₹9,60,000 − ₹6,40,000 − ₹1,20,000 = ₹2,00,000
Ratio Analysis: Liquidity, Profitability, Activity and Solvency
Liquidity ratios
- Current ratio
- Current assets ÷ Current liabilities
- Quick (acid-test) ratio
- (Current assets − Inventory) ÷ Current liabilities
- Cash ratio
- (Cash + Cash equivalents) ÷ Current liabilities
- Worked example
- Current ratio = ₹18,00,000 ÷ ₹8,00,000 = 2.25 : 1
- Worked example
- Quick ratio = (₹18,00,000 − ₹8,00,000) ÷ ₹8,00,000 = 1.25 : 1
- Worked example
- Cash ratio = ₹4,00,000 ÷ ₹8,00,000 = 0.50 : 1
Profitability ratios
- Gross profit ratio
- (Gross profit ÷ Net sales) × 100
- Net profit ratio
- (Net profit ÷ Net sales) × 100
- Return on assets (ROA)
- (Net profit ÷ Total assets) × 100
- Return on equity (ROE)
- (Net profit ÷ Shareholders’ equity) × 100
- Worked example
- Gross profit ratio = ₹15,00,000 ÷ ₹50,00,000 × 100 = 30%
- Worked example
- Net profit ratio = ₹4,20,000 ÷ ₹50,00,000 × 100 = 8.4%
- Worked example
- Return on assets = ₹4,20,000 ÷ ₹40,00,000 × 100 = 10.5%
- Worked example
- Return on equity = ₹4,20,000 ÷ ₹24,00,000 × 100 = 17.5%
Operating ratio, capital employed and earnings per share
- Worked example
- Operating ratio = (₹35,00,000 + ₹8,00,000) ÷ ₹50,00,000 × 100 = 86%
- Worked example
- Operating profit ratio = ₹7,00,000 ÷ ₹50,00,000 × 100 = 14%
- Worked example
- Capital employed = Equity ₹24,00,000 + Long-term borrowings ₹8,00,000 = ₹32,00,000
- Worked example
- ROCE = ₹7,00,000 ÷ ₹32,00,000 × 100 = 21.9%
Activity (turnover) ratios
- Inventory turnover
- Cost of goods sold ÷ Average inventory
- Debtors turnover
- Net credit sales ÷ Average accounts receivable
- Creditors turnover
- Net credit purchases ÷ Average accounts payable
- Asset turnover
- Net sales ÷ Total assets
- Worked example
- Inventory turnover = ₹35,00,000 ÷ ₹7,00,000 = 5 times, or 73 days of stock
- Worked example
- Debtors turnover = ₹40,00,000 ÷ ₹5,00,000 = 8 times, or 45.6 days to collect
- Worked example
- Creditors turnover = ₹37,00,000 ÷ ₹4,50,000 = 8.22 times, or 44.4 days to pay
- Worked example
- Asset turnover = ₹50,00,000 ÷ ₹40,00,000 = 1.25 times
Solvency ratios
- Debt-to-equity
- Total debt ÷ Shareholders’ equity
- Debt ratio
- Total debt ÷ Total assets
- Interest coverage
- EBIT ÷ Interest expense
- Worked example
- Debt-to-equity = ₹10,00,000 ÷ ₹24,00,000 = 0.42
- Worked example
- Debt ratio = ₹10,00,000 ÷ ₹40,00,000 = 0.25, or 25%
- Worked example
- Interest coverage = ₹7,00,000 ÷ ₹1,00,000 = 7 times
Fund Flow Statement
Schedule of changes in working capital
- Worked example
- ₹70,000 − ₹20,000 = ₹50,000 increase
Statement of sources and applications of funds
- Worked example
- Profit before tax ₹2,00,000 + Depreciation ₹40,000 − Tax paid ₹60,000 = Funds from operations ₹1,80,000
Cost Accounting and the Cost Sheet
Types and elements of cost
- Formula
- Prime cost = Direct material + Direct labour + Direct expenses
- Formula
- Total cost = Prime cost + Overheads
Target Costing, Kaizen Costing and Just-in-Time
Target costing
- Formula
- Target cost = Selling price − Desired profit
Marginal Costing and Cost-Volume-Profit Analysis
Marginal costing and contribution
- Contribution
- Sales − Variable cost
- Contribution per unit
- Selling price − Variable cost per unit
- P/V ratio
- (Contribution ÷ Sales) × 100
- Profit
- Contribution − Fixed costs
Break-even and cost-volume-profit analysis
- Break-even (units)
- Fixed cost ÷ Contribution per unit
- Break-even (₹)
- Fixed cost ÷ P/V ratio
- Margin of safety
- Actual sales − Break-even sales
- Target profit (units)
- (Fixed cost + Desired profit) ÷ Contribution per unit
- Target profit (₹)
- (Fixed cost + Desired profit) ÷ P/V ratio
Relationships in CVP and the angle of incidence
- Marginal cost equation
- Sales − Variable cost = Fixed cost + Profit
- At break-even
- Contribution = Fixed cost
- In the margin of safety
- Contribution = Profit
- Margin of safety
- Profit ÷ P/V ratio
- P/V ratio from two years
- Change in profit ÷ Change in sales
Standard Costing and Variance Analysis
Standard costing and variances
- Formula
- MCV = MPV + MUV | LCV = LRV + LEV + LITV | VOCV = VOEV + VOEEV | FOCV = FOEV + FOVV
Material and labour variances
- Cost (MCV)
- (SQ × SP) − (AQ × AP)
- Price (MPV)
- AQ × (SP − AP)
- Usage (MUV)
- SP × (SQ − AQ)
- Cost (LCV)
- (SH × SR) − (AH × AR)
- Rate (LRV)
- AH × (SR − AR)
- Efficiency (LEV)
- SR × (SH − AH worked)
- Idle time (LITV)
- Idle hours × SR
Overhead variances
- Cost (VOCV)
- (SH × SR) − (AH × AR)
- Expenditure (VOEV)
- AH × (SR − AR)
- Efficiency (VOEEV)
- SR × (SH − AH)
- Cost (FOCV)
- Standard fixed OH − Actual fixed OH
- Expenditure (FOEV)
- Budgeted fixed OH − Actual fixed OH
- Volume (FOVV)
- Standard fixed OH − Budgeted fixed OH
Sales variances
- Value
- Actual sales − Budgeted sales
- Price
- Actual quantity × (Actual price − Standard price)
- Volume
- Standard price × (Actual quantity − Budgeted quantity)
Budgeting and Budgetary Control
Functional budgets and the master budget
- Worked example
- Units to be produced = Sales + Closing stock − Opening stock = 12,000 + 2,000 − 1,500 = 12,500
Financial Management
Capital budgeting and dividend policy
- Worked example
- Payback = ₹10,00,000 ÷ ₹4,00,000 = 2.5 years
- Worked example
- NPV = ₹4,00,000 × (annuity factor for 12%, 4 years: 3.0373) − ₹10,00,000, which is about ₹2,14,900
Cost of Capital
Specific costs: debt, preference, equity and retained earnings
- Debt (before tax)
- Kd = I ÷ NP
- Debt (after tax)
- Kd = I(1 − T) ÷ NP
- Preference
- Kp = Dp ÷ NP
- Equity: dividend growth
- Ke = D1 ÷ P0 + g
- Equity: earnings yield
- Ke = E1 ÷ P0
- Equity: CAPM
- Ke = Rf + β(Rm − Rf)
- Retained earnings
- Kr ≈ Ke
- Worked example
- Debt: a ₹100 debenture at 10% interest, with net proceeds of ₹95. Before tax Kd = 10 ÷ 95 = 10.53%. After tax Kd = 10 × (1 − 0.25) ÷ 95 = 7.89%
- Worked example
- Preference: ₹100 share at 12%, net proceeds ₹96. Kp = 12 ÷ 96 = 12.5%
- Worked example
- Equity, dividend growth: next dividend ₹6, price ₹100, growth 4%. Ke = 6 ÷ 100 + 0.04 = 10%
- Worked example
- Equity, earnings yield: expected earnings ₹10 on a ₹100 share. Ke = 10 ÷ 100 = 10%
- Worked example
- Equity, CAPM: risk-free 7%, β = 1.2, market return 12%. Ke = 7 + 1.2 × (12 − 7) = 13%
Weighted average cost of capital (WACC)
- Formula
- WACC = (weight of debt × cost of debt) + (weight of preference × cost of preference) + (weight of equity × cost of equity)
- Worked example
- WACC = 4.0% + 1.2% + 7.5% = 12.7%
Capital Structure Theories
Modigliani–Miller and leverage irrelevance
- Worked example
- Ke = 12% + (12% − 10%) × 0.67 = 13.3%
Unit 6Strategic Management
External Analysis: PESTEL, Five Forces and Industry Life Cycle
Porter's five forces
- Worked example
- CR4 = 8 + 6 + 4 + 2 = 20%
Business Portfolio Analysis: BCG and GE–McKinsey Matrices
The BCG growth-share matrix
- Formula
- Relative market share = the SBU's market share ÷ the share of its largest competitor
Unit 7Marketing Management
Pricing Decisions: Objectives, Factors and Strategies
Setting the price
- Worked example
- Unit cost = variable cost + fixed cost ÷ unit sales = ₹1,000 + ₹30,00,000 ÷ 10,000 = ₹1,300
- Worked example
- Mark-up price = unit cost ÷ (1 − desired return on sales) = ₹1,300 ÷ 0.80 = ₹1,625
- Worked example
- Target-return price = unit cost + (desired return × invested capital) ÷ unit sales = ₹1,300 + ₹20,00,000 ÷ 10,000 = ₹1,500
Place: Distribution Channels, Logistics and Supply Chains
The four logistics decisions
- Worked example
- EOQ = √(2 × annual demand × cost per order ÷ carrying cost per unit) = √(2 × 12,000 × ₹500 ÷ ₹12) = √10,00,000 = 1,000 fans
- Worked example
- Reorder point = daily demand × lead time + safety stock = 40 × 5 days + 100 = 300 fans
Promotion Decisions: The Communication Mix and Budget
Advertising
- Formula
- GRPs = reach (% of target audience) × average frequency
Services Marketing
Service quality and SERVQUAL
- Formula
- SERVQUAL gap = perception score − expectation score
Customer Relationship Marketing
Relationship marketing and CRM
- Worked example
- CLV = 3,600 ÷ 1.1 + 3,600 ÷ 1.1² + 3,600 ÷ 1.1³ = 3,273 + 2,975 + 2,705 ≈ ₹8,950
Customer retention and loyalty
- Worked example
- Retention rate = (2,000 − 300) ÷ 2,000 = 85%; churn = 15%
Emerging Trends in Marketing
Online and direct marketing
- Worked example
- Cost per click = ₹50,000 ÷ 10,000 = ₹5
Orders = 10,000 × 2% = 200
Cost per order = ₹50,000 ÷ 200 = ₹250
Margin = 200 × ₹400 = ₹80,000; after the ads, ₹80,000 − ₹50,000 = ₹30,000
Return on the ad investment (ROI) = ₹30,000 ÷ ₹50,000 = 60%
Return on ad spend (ROAS), on margin = ₹80,000 ÷ ₹50,000 = 1.6×
Gathered from the chapters’ own text. Revising the summaries instead? See the revision sheets.