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Unlock This CourseBusiness calculations are the backbone of decision-making in any company. Whether you're calculating profit margins, working out break-even points, or analysing cash flow, these skills are essential for IGCSE Business success. Don't worry if maths isn't your strongest subject - we'll break everything down into simple, manageable steps.
Key Definitions:
Profit = Revenue - Total Costs
Revenue = Price × Quantity Sold
Break-even = Fixed Costs ÷ (Price - Variable Cost per unit)
Gross Profit Margin = (Gross Profit ÷ Revenue) × 100
Net Profit Margin = (Net Profit ÷ Revenue) × 100
Profit calculations are fundamental to business success. Understanding different types of profit helps businesses make informed decisions about pricing, costs and growth strategies.
There are three main types of profit you need to understand: gross profit, operating profit and net profit. Each tells us something different about a business's performance.
Formula: Revenue - Cost of Sales
Shows profit before operating expenses. A bakery selling £1,000 of cakes with £400 ingredient costs has £600 gross profit.
Formula: Gross Profit - Operating Expenses
Profit from normal business operations. If our bakery has £200 in rent and wages, operating profit is £400.
Formula: Operating Profit - Interest and Tax
Final profit after all costs. With £50 interest and tax, our bakery's net profit is £350.
TechStart Ltd sells software subscriptions for £50 each. In January, they sold 200 subscriptions. Their variable costs were £15 per subscription and fixed costs were £4,000. Calculate their gross profit, total costs and net profit. Answer: Revenue = £10,000, Variable costs = £3,000, Gross profit = £7,000, Total costs = £7,000, Net profit = £3,000.
Break-even analysis helps businesses understand how many units they need to sell to cover all their costs. It's a crucial tool for planning and decision-making.
The break-even point is where total revenue equals total costs - the business makes neither profit nor loss. Beyond this point, every additional sale contributes to profit.
Break-even point (units) = Fixed Costs ÷ Contribution per unit
Contribution per unit = Selling price - Variable cost per unit
Example: Fixed costs £2,000, selling price £25, variable cost £15
Contribution = £10, Break-even = 200 units
Ratios help compare different aspects of business performance and make data easier to understand. They're particularly useful for comparing businesses of different sizes or tracking performance over time.
Different ratios tell us different things about a business's health and performance. Let's explore the most important ones for IGCSE Business.
Gross Profit Margin: Shows efficiency in production
Net Profit Margin: Shows overall profitability after all costs
Current Ratio: Current Assets ÷ Current Liabilities
Shows ability to pay short-term debts. Ideal range: 1.5-2.0
Asset Turnover: Revenue ÷ Total Assets
Shows how efficiently assets generate sales
Cash flow is the lifeblood of any business. Understanding how to calculate and interpret cash flow data is essential for business survival and growth planning.
Net Cash Flow = Cash Inflows - Cash Outflows
Opening Balance + Net Cash Flow = Closing Balance
Remember: Profit doesn't equal cash flow. A profitable business can still have cash flow problems if customers pay late or if they invest heavily in stock.
Green Gardens had an opening cash balance of £5,000 in March. Cash inflows were £12,000 (sales) and £3,000 (loan). Cash outflows were £8,000 (supplies), £2,000 (wages) and £1,500 (rent). Calculate the net cash flow and closing balance. Answer: Net cash flow = £3,500, Closing balance = £8,500.
Success in calculation questions isn't just about knowing the formulae - it's about applying them correctly under exam pressure. Here are proven strategies to maximise your marks.
Follow these steps for every calculation question to avoid silly mistakes and ensure you get maximum marks even if your final answer is wrong.
S - Show the formula
H - Highlight the figures you're using
O - Outline your working
W - Write your final answer with units
Learn from others' mistakes! These are the most common errors students make in business calculation questions and how to avoid them.
Recognising these common pitfalls will help you avoid losing easy marks in your exams.
Always include units (£, %, units) and label your answers clearly. "Profit = £2,500" not just "2,500".
Round appropriately - usually to 2 decimal places for money, whole numbers for units sold.
Double-check you're using the right formula. Revenue isn't profit and gross profit isn't net profit.
Managing your time effectively in calculation questions can make the difference between success and failure. Here's how to work smart, not just hard.
2-mark questions: 2-3 minutes maximum
4-mark questions: 4-5 minutes
6-mark questions: 6-8 minutes
If you're stuck, move on and return later. Don't let one difficult question ruin your entire exam performance.
SportZone sells trainers for £80 each with variable costs of £45. Fixed costs are £7,000 monthly. In June, they sold 250 pairs. Calculate: 1) Contribution per unit, 2) Total contribution, 3) Net profit, 4) Break-even point. Answers: 1) £35, 2) £8,750, 3) £1,750, 4) 200 units.