70 Business Math Formulas: Free Searchable Cheat Sheet
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Business Math Formulas by Category
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Revenue, Profit and Margin (10)
Revenue · Cost of Goods Sold (COGS) · Gross Profit · Gross Profit Margin · Net Profit · Net Profit Margin · Contribution Margin · Contribution Margin Ratio · Operating Margin · Operating Expense Ratio
Break-Even and Cost Behavior (10)
Break-Even Point (Units) · Break-Even Revenue · Break-Even Point (Revenue) · Break-Even Volume · Margin of Safety · Contribution per Unit · Contribution Margin per Unit · Variable Cost per Unit · Fixed Cost per Unit · Operating Leverage
Pricing, Product and Costing (6)
Markup · Sales Mix · Weighted Average Contribution Margin · Contribution Margin Ratio for Multiple Products · Absorption Costing · Variable Costing
Return and Investment (8)
Return on Investment (ROI) · Payback Period · Net Present Value (NPV) · Internal Rate of Return (IRR) · Profitability Index (PI) · Return on Assets (ROA) · Return on Equity (ROE) · Capital Turnover
Cash Flow and Liquidity (8)
Net Working Capital (NWC) · Quick Ratio · Current Ratio · Operating Cash Flow (OCF) · Free Cash Flow (FCF) · Operating Cash Flow Ratio · Cash Conversion Cycle (CCC) · Operating Cycle
Working Capital Days (4)
Inventory Days · Receivables Days · Payables Days · Accounts Receivable Turnover
Debt and Capital Structure (5)
Debt-to-Equity Ratio · Debt Ratio · Equity Ratio · Weighted Average Cost of Capital (WACC) · Financial Leverage
Earnings, Shares and Tax (7)
Earnings Before Interest & Taxes (EBIT) · Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) · Earnings Per Share (EPS) · Price-to-Earnings Ratio (P/E) · Dividend Yield · Earnings Before Taxes (EBT) · Effective Tax Rate
Interest and Time Value (3)
Annual Percentage Rate (APR) · Compound Interest · Simple Interest
Customer and Sales (3)
Customer Acquisition Cost (CAC) · Customer Lifetime Value (CLV) · Profit per Customer
Inventory and Operations (5)
Inventory Turnover · Economic Order Quantity (EOQ) · Safety Stock · Productivity · Labor Cost per Unit
Growth (1)
1. Revenue
- Purpose: Measures total income from sales before costs.
- Formula:
Revenue = Price × Quantity Sold - Example: Selling 500 units at $25 each → 500 × 25 = $12,500
2. Cost of Goods Sold (COGS)
- Purpose: Calculates the direct cost of producing goods sold.
- Formula:
COGS = Beginning Inventory + Purchases - Ending Inventory - Example: 10,000 + 5,000 - 3,000 = $12,000
3. Gross Profit
- Purpose: Shows profit after covering the cost of goods.
- Formula:
Gross Profit = Revenue - COGS - Example: 12,500 - 12,000 = $500
4. Gross Profit Margin
- Purpose: Indicates profitability as a percentage of revenue.
- Formula:
(Gross Profit ÷ Revenue) × 100 - Example: (500 ÷ 12,500) × 100 = 4%
5. Net Profit
- Purpose: Measures profit after all expenses, including operating costs and taxes.
- Formula:
Net Profit = Revenue - Total Expenses - Example: 12,500 - 10,000 = $2,500
6. Net Profit Margin
- Purpose: Shows how much of revenue remains as profit.
- Formula:
(Net Profit ÷ Revenue) × 100 - Example: (2,500 ÷ 12,500) × 100 = 20%
7. Contribution Margin
- Purpose: Amount each product contributes to fixed costs and profit.
- Formula:
Contribution Margin = Revenue - Variable Costs - Example: 12,500 - 8,000 = $4,500
8. Contribution Margin Ratio
- Purpose: Percentage of revenue that contributes to fixed costs.
- Formula:
(Contribution Margin ÷ Revenue) × 100 - Example: (4,500 ÷ 12,500) × 100 = 36%
9. Break-Even Point (Units)
- Purpose: Number of units needed to cover all costs.
- Formula:
Break-Even Units = Fixed Costs ÷ Contribution Margin per Unit - Example: 5,000 ÷ 10 = 500 units
10. Break-Even Revenue
- Purpose: Revenue needed to cover costs.
- Formula:
Break-Even Revenue = Break-Even Units × Price per Unit - Example: 500 × 25 = $12,500
11. Return on Investment (ROI)
- Purpose: Measures the efficiency of an investment.
- Formula:
(Net Profit ÷ Investment Cost) × 100 - Example: 2,500 ÷ 10,000 × 100 = 25%
12. Payback Period
- Purpose: Time required to recoup an investment.
- Formula:
Payback Period = Investment ÷ Annual Cash Inflow - Example: 10,000 ÷ 2,500 = 4 years
13. Customer Acquisition Cost (CAC)
- Purpose: Cost to gain a new customer.
- Formula:
CAC = Total Sales & Marketing Costs ÷ Number of New Customers - Example: 5,000 ÷ 50 = $100 per customer
14. Customer Lifetime Value (CLV)
- Purpose: Total revenue expected from a customer over their relationship.
- Formula:
CLV = Average Purchase Value × Number of Purchases × Customer Lifespan - Example: 50 × 10 × 3 = $1,500
15. Inventory Turnover
- Purpose: Measures how quickly inventory sells.
- Formula:
Inventory Turnover = COGS ÷ Average Inventory - Example: 12,000 ÷ ((10,000 + 3,000)/2) = 1.85 times/year
16. Accounts Receivable Turnover
- Purpose: How fast you collect payments from customers.
- Formula:
AR Turnover = Net Credit Sales ÷ Average Accounts Receivable - Example: 50,000 ÷ 10,000 = 5 times/year
17. Debt-to-Equity Ratio
- Purpose: Financial leverage of the business.
- Formula:
Debt-to-Equity = Total Liabilities ÷ Shareholder Equity - Example: 50,000 ÷ 100,000 = 0.5 → 50%
18. Operating Margin
- Purpose: Percentage of revenue left after operating expenses.
- Formula:
(Operating Income ÷ Revenue) × 100 - Example: 5,000 ÷ 12,500 × 100 = 40%
19. Markup
- Purpose: Percentage added to cost to set a selling price.
- Formula:
Markup (%) = ((Selling Price - Cost) ÷ Cost) × 100 - Example: (25-20)/20 × 100 = 25%
20. Percent Change / Growth Rate
- Purpose: Measures growth or decline over time.
- Formula:
Percent Change = ((New Value - Old Value) ÷ Old Value) × 100 - Example: (12,500-10,000)/10,000 × 100 = 25% growth
21. Net Working Capital (NWC)
- Purpose: Measures short-term liquidity of a business.
- Formula:
NWC = Current Assets - Current Liabilities - Example: 50,000 - 30,000 = $20,000
22. Quick Ratio
- Purpose: Indicates ability to pay short-term obligations without inventory.
- Formula:
(Current Assets - Inventory) ÷ Current Liabilities - Example: (50,000 - 10,000) ÷ 30,000 = 1.33
23. Current Ratio
- Purpose: Measures short-term financial health.
- Formula:
Current Assets ÷ Current Liabilities - Example: 50,000 ÷ 30,000 = 1.67
24. Operating Cash Flow (OCF)
- Purpose: Cash generated by business operations.
- Formula:
OCF = Net Income + Non-Cash Expenses + Changes in Working Capital - Example: 20,000 + 5,000 - 3,000 = $22,000
25. Free Cash Flow (FCF)
- Purpose: Cash available after capital expenditures.
- Formula:
FCF = Operating Cash Flow - Capital Expenditures - Example: 22,000 - 7,000 = $15,000
26. Earnings Before Interest & Taxes (EBIT)
- Purpose: Operating profit before financing costs and taxes.
- Formula:
EBIT = Revenue - Operating Expenses - Example: 12,500 - 5,000 = $7,500
27. Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA)
- Purpose: Shows cash profitability excluding non-cash charges.
- Formula:
EBITDA = EBIT + Depreciation + Amortization - Example: 7,500 + 1,000 + 500 = $9,000
28. Debt Ratio
- Purpose: Measures proportion of assets financed by debt.
- Formula:
Debt Ratio = Total Liabilities ÷ Total Assets - Example: 50,000 ÷ 150,000 = 0.33 → 33%
29. Equity Ratio
- Purpose: Measures proportion of assets financed by equity.
- Formula:
Equity Ratio = Total Equity ÷ Total Assets - Example: 100,000 ÷ 150,000 = 0.67 → 67%
30. Inventory Days
- Purpose: Average number of days inventory is held before sale.
- Formula:
Inventory Days = 365 ÷ Inventory Turnover - Example: 365 ÷ 1.85 ≈ 197 days
31. Receivables Days
- Purpose: Average days to collect payment.
- Formula:
Receivables Days = 365 ÷ AR Turnover - Example: 365 ÷ 5 ≈ 73 days
32. Payables Days
- Purpose: Average days to pay suppliers.
- Formula:
Payables Days = 365 ÷ Accounts Payable Turnover - Example: 365 ÷ 6 ≈ 61 days
33. Cash Conversion Cycle (CCC)
- Purpose: Time to convert inventory & receivables into cash.
- Formula:
CCC = Inventory Days + Receivables Days - Payables Days - Example: 197 + 73 - 61 = 209 days
34. Contribution per Unit
- Purpose: Profit from selling one unit after variable costs.
- Formula:
Contribution per Unit = Selling Price - Variable Cost per Unit - Example: 25 - 15 = $10/unit
35. Weighted Average Cost of Capital (WACC)
- Purpose: Average cost of financing a business (debt + equity).
- Formula:
WACC = (E/V × Re) + (D/V × Rd × (1-T)) - Example: Simplified: 0.6 × 10% + 0.4 × 5% × (1-0.3) ≈ 7.1%
36. Earnings Per Share (EPS)
- Purpose: Profit allocated per outstanding share.
- Formula:
EPS = Net Income ÷ Shares Outstanding - Example: 2,500 ÷ 1,000 = $2.50/share
37. Price-to-Earnings Ratio (P/E)
- Purpose: Measures stock price relative to earnings.
- Formula:
P/E = Market Price per Share ÷ EPS - Example: $50 ÷ 2.50 = 20
38. Dividend Yield
- Purpose: Measures return to shareholders via dividends.
- Formula:
Dividend Yield = Annual Dividend ÷ Share Price × 100 - Example: 2 ÷ 50 × 100 = 4%
39. Break-Even Point (Revenue)
- Purpose: Revenue needed to cover all costs.
- Formula:
Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio - Example: 5,000 ÷ 0.36 ≈ $13,889
40. Margin of Safety
- Purpose: How much sales can drop before a loss occurs.
- Formula:
Margin of Safety = (Current Sales - Break-Even Sales) ÷ Current Sales × 100 - Example: (15,000 - 13,889)/15,000 × 100 ≈ 7.41%
41. Net Present Value (NPV)
- Purpose: Determines the present value of future cash flows from an investment.
- Formula:
NPV = ∑ (Cash Flow ÷ (1 + Discount Rate)^t) - Initial Investment - Example: Cash flows: 5,000 per year for 3 years, discount rate 10%, initial investment 12,000 → NPV ≈ $1,136
42. Internal Rate of Return (IRR)
- Purpose: Discount rate at which NPV of an investment equals zero.
- Formula:
Use financial calculator or Excel IRR function - Example: Cash flows: -12,000, 5,000, 5,000, 5,000 → IRR ≈ 13.5%
43. Profitability Index (PI)
- Purpose: Measures value created per dollar invested.
- Formula:
PI = Present Value of Future Cash Flows ÷ Initial Investment - Example: PV = 13,136, Investment = 12,000 → PI = 13,136 ÷ 12,000 ≈ 1.09
44. Annual Percentage Rate (APR)
- Purpose: Cost of borrowing expressed annually.
- Formula:
APR = (Interest ÷ Principal ÷ Number of Periods) × 100 - Example: $500 interest on $10,000 for 1 year → APR = (500 ÷ 10,000) × 100 = 5%
45. Compound Interest
- Purpose: Calculates interest on principal plus accumulated interest.
- Formula:
A = P × (1 + r/n)^(n×t) - Example: 10,000 × (1 + 0.05/1)^(1×3) ≈ $11,576
46. Simple Interest
- Purpose: Calculates interest only on principal.
- Formula:
Interest = Principal × Rate × Time - Example: 10,000 × 0.05 × 3 = $1,500
47. Break-Even Volume
- Purpose: Units needed to cover fixed costs at a given price and variable cost.
- Formula:
Break-Even Volume = Fixed Costs ÷ (Price - Variable Cost) - Example: 5,000 ÷ (25 - 15) = 500 units
48. Operating Leverage
- Purpose: Measures sensitivity of operating income to sales changes.
- Formula:
Degree of Operating Leverage = Contribution Margin ÷ Operating Income - Example: 4,500 ÷ 7,500 = 0.6
49. Economic Order Quantity (EOQ)
- Purpose: Optimal order quantity to minimize inventory costs.
- Formula:
EOQ = √(2 × Demand × Ordering Cost ÷ Holding Cost) - Example: √(2 × 1,000 × 50 ÷ 2) ≈ 224 units
50. Safety Stock
- Purpose: Extra inventory to prevent stockouts.
- Formula:
Safety Stock = (Max Daily Usage - Average Daily Usage) × Lead Time - Example: (50 - 40) × 5 = 50 units
51. Productivity
- Purpose: Measures efficiency of resources.
- Formula:
Productivity = Output ÷ Input - Example: 1,000 units ÷ 100 labor hours = 10 units/hour
52. Labor Cost per Unit
- Purpose: Calculates labor expense per product.
- Formula:
Labor Cost per Unit = Total Labor Cost ÷ Units Produced - Example: 2,000 ÷ 500 = $4/unit
53. Variable Cost per Unit
- Purpose: Cost that changes with production volume.
- Formula:
Variable Cost per Unit = Total Variable Costs ÷ Units Produced - Example: 4,000 ÷ 500 = $8/unit
54. Fixed Cost per Unit
- Purpose: Spreads fixed costs over units produced.
- Formula:
Fixed Cost per Unit = Total Fixed Costs ÷ Units Produced - Example: 1,000 ÷ 500 = $2/unit
55. Contribution Margin per Unit
- Purpose: Profit per unit after covering variable costs.
- Formula:
Selling Price - Variable Cost - Example: 25 - 8 = $17/unit
56. Sales Mix
- Purpose: Percentage of each product sold relative to total sales.
- Formula:
Sales Mix (%) = Product Sales ÷ Total Sales × 100 - Example: 5,000 ÷ 20,000 × 100 = 25%
57. Weighted Average Contribution Margin
- Purpose: Blended contribution margin for multiple products.
- Formula:
∑ (Product Contribution × Sales Mix) - Example: (17 × 0.25) + (10 × 0.75) = 12.75/unit
58. Absorption Costing
- Purpose: Assigns all manufacturing costs to products.
- Formula:
Total Product Cost = Direct Materials + Direct Labor + Manufacturing Overhead - Example: 3,000 + 2,000 + 1,000 = $6,000
59. Variable Costing
- Purpose: Only variable costs assigned to products.
- Formula:
Variable Product Cost = Direct Materials + Direct Labor + Variable Overhead - Example: 3,000 + 2,000 + 500 = $5,500
60. Operating Expense Ratio
- Purpose: Percentage of revenue consumed by operating expenses.
- Formula:
(Operating Expenses ÷ Revenue) × 100 - Example: 5,000 ÷ 12,500 × 100 = 40%
61. Return on Assets (ROA)
- Purpose: Profitability relative to total assets.
- Formula:
(Net Income ÷ Total Assets) × 100 - Example: 2,500 ÷ 150,000 × 100 = 1.67%
62. Return on Equity (ROE)
- Purpose: Profitability relative to shareholders' equity.
- Formula:
(Net Income ÷ Shareholders' Equity) × 100 - Example: 2,500 ÷ 100,000 × 100 = 2.5%
63. Financial Leverage
- Purpose: Shows how debt magnifies returns.
- Formula:
Financial Leverage = Total Assets ÷ Equity - Example: 150,000 ÷ 100,000 = 1.5
64. Operating Cash Flow Ratio
- Purpose: Ability to cover liabilities with operating cash flow.
- Formula:
OCF ÷ Current Liabilities - Example: 22,000 ÷ 30,000 ≈ 0.73
65. Capital Turnover
- Purpose: Efficiency in using capital to generate sales.
- Formula:
Revenue ÷ Capital Employed - Example: 12,500 ÷ 100,000 = 0.125
66. Earnings Before Taxes (EBT)
- Purpose: Profit before tax is deducted.
- Formula:
EBT = Net Income + Taxes - Example: 2,500 + 500 = $3,000
67. Effective Tax Rate
- Purpose: Average tax rate paid.
- Formula:
(Taxes ÷ EBT) × 100 - Example: 500 ÷ 3,000 × 100 = 16.67%
68. Operating Cycle
- Purpose: Time from inventory purchase to cash collection.
- Formula:
Operating Cycle = Inventory Days + Receivables Days - Example: 197 + 73 = 270 days
69. Profit per Customer
- Purpose: Measures profitability of individual customers.
- Formula:
Profit per Customer = (Revenue - Costs) ÷ Number of Customers - Example: (12,500 - 10,000) ÷ 50 = $50/customer
70. Contribution Margin Ratio for Multiple Products
- Purpose: Weighted ratio for a product mix.
- Formula:
∑ (Product Contribution Margin × Sales Mix) - Example: (17 × 0.25) + (10 × 0.75) = 12.75%
All 70 Business Math Formulas at a Glance
The full cheat sheet in one table. Every formula above, condensed so you can scan, copy, or print the lot.
| # | Formula Name | Calculation |
|---|---|---|
| Revenue, Profit and Margin | ||
| 1 | Revenue | Revenue = Price × Quantity Sold |
| 2 | Cost of Goods Sold (COGS) | COGS = Beginning Inventory + Purchases - Ending Inventory |
| 3 | Gross Profit | Gross Profit = Revenue - COGS |
| 4 | Gross Profit Margin | (Gross Profit ÷ Revenue) × 100 |
| 5 | Net Profit | Net Profit = Revenue - Total Expenses |
| 6 | Net Profit Margin | (Net Profit ÷ Revenue) × 100 |
| 7 | Contribution Margin | Contribution Margin = Revenue - Variable Costs |
| 8 | Contribution Margin Ratio | (Contribution Margin ÷ Revenue) × 100 |
| 18 | Operating Margin | (Operating Income ÷ Revenue) × 100 |
| 60 | Operating Expense Ratio | (Operating Expenses ÷ Revenue) × 100 |
| Break-Even and Cost Behavior | ||
| 9 | Break-Even Point (Units) | Break-Even Units = Fixed Costs ÷ Contribution Margin per Unit |
| 10 | Break-Even Revenue | Break-Even Revenue = Break-Even Units × Price per Unit |
| 39 | Break-Even Point (Revenue) | Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio |
| 47 | Break-Even Volume | Break-Even Volume = Fixed Costs ÷ (Price - Variable Cost) |
| 40 | Margin of Safety | Margin of Safety = (Current Sales - Break-Even Sales) ÷ Current Sales × 100 |
| 34 | Contribution per Unit | Contribution per Unit = Selling Price - Variable Cost per Unit |
| 55 | Contribution Margin per Unit | Selling Price - Variable Cost |
| 53 | Variable Cost per Unit | Variable Cost per Unit = Total Variable Costs ÷ Units Produced |
| 54 | Fixed Cost per Unit | Fixed Cost per Unit = Total Fixed Costs ÷ Units Produced |
| 48 | Operating Leverage | Degree of Operating Leverage = Contribution Margin ÷ Operating Income |
| Pricing, Product and Costing | ||
| 19 | Markup | Markup (%) = ((Selling Price - Cost) ÷ Cost) × 100 |
| 56 | Sales Mix | Sales Mix (%) = Product Sales ÷ Total Sales × 100 |
| 57 | Weighted Average Contribution Margin | ∑ (Product Contribution × Sales Mix) |
| 70 | Contribution Margin Ratio for Multiple Products | ∑ (Product Contribution Margin × Sales Mix) |
| 58 | Absorption Costing | Total Product Cost = Direct Materials + Direct Labor + Manufacturing Overhead |
| 59 | Variable Costing | Variable Product Cost = Direct Materials + Direct Labor + Variable Overhead |
| Return and Investment | ||
| 11 | Return on Investment (ROI) | (Net Profit ÷ Investment Cost) × 100 |
| 12 | Payback Period | Payback Period = Investment ÷ Annual Cash Inflow |
| 41 | Net Present Value (NPV) | NPV = ∑ (Cash Flow ÷ (1 + Discount Rate)^t) - Initial Investment |
| 42 | Internal Rate of Return (IRR) | Use financial calculator or Excel IRR function |
| 43 | Profitability Index (PI) | PI = Present Value of Future Cash Flows ÷ Initial Investment |
| 61 | Return on Assets (ROA) | (Net Income ÷ Total Assets) × 100 |
| 62 | Return on Equity (ROE) | (Net Income ÷ Shareholders' Equity) × 100 |
| 65 | Capital Turnover | Revenue ÷ Capital Employed |
| Cash Flow and Liquidity | ||
| 21 | Net Working Capital (NWC) | NWC = Current Assets - Current Liabilities |
| 22 | Quick Ratio | (Current Assets - Inventory) ÷ Current Liabilities |
| 23 | Current Ratio | Current Assets ÷ Current Liabilities |
| 24 | Operating Cash Flow (OCF) | OCF = Net Income + Non-Cash Expenses + Changes in Working Capital |
| 25 | Free Cash Flow (FCF) | FCF = Operating Cash Flow - Capital Expenditures |
| 64 | Operating Cash Flow Ratio | OCF ÷ Current Liabilities |
| 33 | Cash Conversion Cycle (CCC) | CCC = Inventory Days + Receivables Days - Payables Days |
| 68 | Operating Cycle | Operating Cycle = Inventory Days + Receivables Days |
| Working Capital Days | ||
| 30 | Inventory Days | Inventory Days = 365 ÷ Inventory Turnover |
| 31 | Receivables Days | Receivables Days = 365 ÷ AR Turnover |
| 32 | Payables Days | Payables Days = 365 ÷ Accounts Payable Turnover |
| 16 | Accounts Receivable Turnover | AR Turnover = Net Credit Sales ÷ Average Accounts Receivable |
| Debt and Capital Structure | ||
| 17 | Debt-to-Equity Ratio | Debt-to-Equity = Total Liabilities ÷ Shareholder Equity |
| 28 | Debt Ratio | Debt Ratio = Total Liabilities ÷ Total Assets |
| 29 | Equity Ratio | Equity Ratio = Total Equity ÷ Total Assets |
| 35 | Weighted Average Cost of Capital (WACC) | WACC = (E/V × Re) + (D/V × Rd × (1-T)) |
| 63 | Financial Leverage | Financial Leverage = Total Assets ÷ Equity |
| Earnings, Shares and Tax | ||
| 26 | Earnings Before Interest & Taxes (EBIT) | EBIT = Revenue - Operating Expenses |
| 27 | Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) | EBITDA = EBIT + Depreciation + Amortization |
| 36 | Earnings Per Share (EPS) | EPS = Net Income ÷ Shares Outstanding |
| 37 | Price-to-Earnings Ratio (P/E) | P/E = Market Price per Share ÷ EPS |
| 38 | Dividend Yield | Dividend Yield = Annual Dividend ÷ Share Price × 100 |
| 66 | Earnings Before Taxes (EBT) | EBT = Net Income + Taxes |
| 67 | Effective Tax Rate | (Taxes ÷ EBT) × 100 |
| Interest and Time Value | ||
| 44 | Annual Percentage Rate (APR) | APR = (Interest ÷ Principal ÷ Number of Periods) × 100 |
| 45 | Compound Interest | A = P × (1 + r/n)^(n×t) |
| 46 | Simple Interest | Interest = Principal × Rate × Time |
| Customer and Sales | ||
| 13 | Customer Acquisition Cost (CAC) | CAC = Total Sales & Marketing Costs ÷ Number of New Customers |
| 14 | Customer Lifetime Value (CLV) | CLV = Average Purchase Value × Number of Purchases × Customer Lifespan |
| 69 | Profit per Customer | Profit per Customer = (Revenue - Costs) ÷ Number of Customers |
| Inventory and Operations | ||
| 15 | Inventory Turnover | Inventory Turnover = COGS ÷ Average Inventory |
| 49 | Economic Order Quantity (EOQ) | EOQ = √(2 × Demand × Ordering Cost ÷ Holding Cost) |
| 50 | Safety Stock | Safety Stock = (Max Daily Usage - Average Daily Usage) × Lead Time |
| 51 | Productivity | Productivity = Output ÷ Input |
| 52 | Labor Cost per Unit | Labor Cost per Unit = Total Labor Cost ÷ Units Produced |
| Growth | ||
| 20 | Percent Change / Growth Rate | Percent Change = ((New Value - Old Value) ÷ Old Value) × 100 |
Frequently Asked Questions About Business Math Formulas
What are the most important business math formulas every small business owner should know? ▶
The most essential formulas for day-to-day decisions are revenue, gross profit margin, net profit margin, break-even point, customer acquisition cost, customer lifetime value, and return on investment. These seven cover pricing, profitability, growth, and customer economics in one foundation.
What is the difference between gross profit margin and net profit margin? ▶
Gross profit margin shows what is left after subtracting the direct cost of producing your product or service. Net profit margin shows what is left after all expenses including operating costs and taxes. A business can have a healthy gross margin and still lose money if operating expenses are too high.
How do you calculate break-even point for a small business? ▶
Divide your total fixed costs by the contribution margin per unit which is your selling price minus variable cost per unit. The result tells you exactly how many units you need to sell before you start making a profit. You can also calculate break-even revenue by multiplying break-even units by price per unit.
What is the difference between ROI and ROE? ▶
ROI measures the return on a specific investment by dividing net profit by the investment cost. ROE measures profitability relative to shareholders equity as a whole. ROI is used to evaluate individual decisions while ROE reflects overall business performance for investors.
What is EBITDA and why do businesses use it? ▶
EBITDA stands for Earnings Before Interest Taxes Depreciation and Amortization. It shows cash profitability by removing non-cash charges and financing costs from the picture. It is widely used to compare operational performance across businesses regardless of how they are financed or what accounting methods they use.
What is the cash conversion cycle and why does it matter? ▶
The cash conversion cycle measures how long it takes to turn inventory and receivables into cash. It is calculated by adding inventory days and receivables days then subtracting payables days. A shorter cycle means faster cash flow. A long cycle means your money is tied up in inventory or unpaid invoices which can create cash flow problems even in a profitable business.
What is customer lifetime value and how does it affect pricing decisions? ▶
Customer lifetime value is the total revenue expected from a customer over the entire relationship calculated by multiplying average purchase value by number of purchases by customer lifespan. It directly affects how much you can afford to spend acquiring a new customer. A healthy business targets a lifetime value to customer acquisition cost ratio of at least three to one.