BTEC Business: Finance Calculations

Ten calculations, each worked through line by line, and every wrong answer is a real error rather than a random number. The margin of safety is a hundred units either way, but dividing it by actual sales gives twenty per cent and dividing it by the break-even figure gives twenty-five — and only one of those is what the term means. The current ratio inverts if you take liabilities over assets, and the inverted figure looks perfectly plausible. A firm buying at forty and selling at fifty has a twenty per cent margin and a twenty-five per cent mark-up; both are correct statements about the same ten pounds, and confusing them is the single most common error in this part of the course. The set also covers a cash balance carried across two months, contribution and what it is not, the gap between the gross margin and the net, return on capital employed, an adverse variance, and the difference between when revenue is earned and when the money arrives. It ends with a rent increase and asks what happens to break-even — where one of the wrong options says nothing changes because the contribution per unit has not changed, which is entirely true about contribution and entirely wrong about break-even. Zestly is an independent study tool. It is not affiliated with any exam board and it is not an exam centre.

• Carry a cash balance across more than one month without losing the opening figure
• Calculate a margin of safety in units and as a percentage of the right denominator
• Calculate contribution per unit and total contribution, and tell both from revenue
• Calculate gross and net profit margins and keep them apart
• Calculate the current ratio the right way round, and return on capital employed
• Tell a margin from a mark-up on the same transaction
• Calculate a variance and say whether it is adverse or favourable
• Say when revenue is recorded against when cash arrives, and work out the effect of higher fixed costs on break-even

Whitwell Supplies buys an item for 40 pounds and sells it for 50. What is the gross profit margin? — 20 per cent. The 25 per cent option is the mark-up, which measures the same 10 pounds of profit against the 40 pound cost instead of against the 50 pound selling price.