BUSINESS ECONOMICS'
FORMULAS
3^{rd} PART – TOPIC 7
Breakeven point.
Breakeven point.
Q = TFC : (P – UVC)
Total revenues.
TR = P x Q
Costs.
TC = TFC + TVC
TC = TFC + UVC x Q
UVC = TVC : Q
AvgC = TC : Q
Profit.
Profit = TR – TC => Profit = P x Q – TC
Profit = TR – TFC – TVC => Profit = P x Q – TFC – TVC
Profit = TR – TFC – UVC x Q => Profit = P x Q – TFC – UVC x Q
Chart.
Q_{max} = 2 x Breakeven point (if the amount of sold units is higher than this quantity we must get to the amount of sold units if we need to represent it in the chart)
TR_{max} = P x Q_{max}
Calculate TR_{0} and TR_{bep}
Calculate TC_{0} and TC_{bep}
Calculate TVC_{0} y TVC_{bep} (if the problem asks for it)
Acquisition cost and Production cost. The formulas are similar to the formulas of breakeven point but with these variations:
Costs.
ADQcost = P x Q (similar to TR = P x Q)
PROcost = TFC + TVC (similar to TC = TFC + TVC)
PROcost = TFC + UVC x Q (similar to TC = TFC + UVC x Q)
Chart.
Q_{max} = 2 x Breakeven point (if the amount of produced units is higher than this quantity we must get to the amount of produced units if we need to represent it in the chart)
ADQcost_{max} = P x Q_{max}
Calculate ADQcost_{0} and ADQcost_{bep}
Calculate PROcost_{0} and PROcost_{bep}
Wilson Model.
Economic order quantity. Q* = sqrt (2DS : H)
Q* = optimal order quantity
D = annual demand quantity of the product
S = fixed cost per order (not per unit, in addition to unit cost)
H = annual holding cost per unit (also known as carrying cost or storage cost) (warehouse space, refrigeration, insurance, etc. usually not related to the unit cost)
How often do we need to realise the order?.
Example. The firm needs 1,000 kgs each year (D), works 300 days annually and its orders reach and amount of 100 kgs (Q)
1,000 kgs.  300 days
100 kgs.  x days
Which is the stock level to do a new order?.
Example. The firm needs 1,000 kgs. each year (D), works 300 days annually and the average time to receive the order is five days
1,000 kgs.  300 days
x kgs.  5 days
Productivity.
Factor productivity = Output quantity of a product : Input quantity of a factor (the outcome will be chairs – for example per hour man or per hour machine)
Global productivity of year zero.
PG_{0} = (P_{1}Q_{1} + P_{2}Q_{2} + … + P_{n}Q_{n}) : (f_{1}F_{1} + f_{2}F_{2} + … + f_{n}F_{n})
Global productivity of year one.
PG_{1} = (P_{1}Q'_{1} + P_{2}Q'_{2} + … + P_{n}Q'_{n}) : (f_{1}F'_{1} + f_{2}F'_{2} + … + f_{n}F'_{n}) (we must use the prices from year zero)
Global productivity index 01.
IPG_{01} = PG_{1} : PG_{0}
3^{rd} PART  TOPIC 8
Share market.
Share market = Firm's sales : Sector's sales
3^{rd} PARTE – TOPIC 9
Payback.
Initial outlay 
1^{st} year 
2^{nd} year 
3^{rd} year 



Collection 
Payment 
Collection 
Payment 
Collection 
Payment 
200,000 
70,000 
30,000 
90,000 
10,000 
100,000 
10,000 
We must do a summary of the previous table by subtracting the payments from the collections:
Initial outlay 
1^{st} year 
2^{nd} year 
3^{rd} year 

200,000 € 
40,000 € 
84,000 € 
90,000 € 
Calculate the years.
1^{st} year. We have recovery only 40,000 € (so we haven't got still the 200,000 €)
2^{nd} year. We have recovery 40,000 + 84,000 = 124,000 € (so we haven't got still the 200,000 €)
3^{rd} year. We have recovery 40,000 + 84,000 + 90,000 = 214,000 (we have got more than 200,000 € so payback is two years and something more)
Calculate the months. We take the year where we have got more than 200,000 € and we do the following rule of three, being 76,000 = 200,000 – 40,000 – 84,000:
90,000 €  12 months
76,000 €  x months x = 10.13 months
Calculate the days. We only take the decimal numbers
1.00 months  30 days
0.13 months  x days x = 3.9 = 4 days
Total calculation. Payback is 2 years, 10 months and 4 days
3^{rd} year cashflow calculation.
Example. Initial outlay = 170,000 €; 1^{st} year cashflow = 50,000 €; 2^{nd} year cashflow = 90,000 €; Payback = 2 years and 5 months
3^{rd} year cashflow. We recover 30,000 in five months (170.000 – 50.000 – 90.000 = 30.000). So:
30,000 €  5 months
x €  12 months x = 72,000 €
Cash Conversion Cycle.
Cash Conversion Cycle = Raw Material Conversion Period (Warehouse Conversion Period) + Goods in Process Conversion Period (Production Conversion Period) + Finished goods Conversion Period (Sales Conversion Period) + Receivables Conversion Period = RMp + GPp + FGp + Rp
Raw material Conversion Period (Warehouse Conversion Period).
Raw material rotation = n1 = Annual raw material purchases : Average raw material stock
Raw Material Conversion Period = RMp = 365 : n1
Goods in Process Conversion Period (Production Conversion Period).
Goods in Process rotation = n2 = Annual cost of production : Average goods in process stock
Goods in Process Conversion Period = GPp = 365 : n2
Finished goods Conversion Period (Sales Conversion Period).
Finished goods rotation = n3 = Annual sales at factor cost : Average finished goods stock
Finished goods Conversion Period = FGp = 365 : n3
Receivables Conversion Period.
Payment from customers rotation = n4 = Annual sales at market prices : Average receivables stock
Receivables Conversion Period = Rp = 365 : n4
Shares values and dividend.
Nominal value.
NV = Share capital : Number of shares
Market value.
MV = Nominal value x Quotation
MV = The problem gives you the value (example: the firm quotes in the Stock Market at 27 €/share)
Theoretical value.
TV = (Share capital + Reserves) : Number of shares
TV = Average dividend : Interest rate (in amount per one unit – e.g. 10% = 0,1)
Dividend per share.
D = Distributable profit : Number of shares
Net worth.
Net worth = Share capital + Reserves
Net Present Value.
NPV =  R_{0} + [R_{1} : (1 + i)] + [R_{2} : (1 + i)^{2}] +... + [R_{t} : (1 + k)^{t}] (we must add the salvage value, as a revenue, last year)
4^{th} PART – TOPIC 10
Working capital.
Working capital = Current assets – Current liabilities
Equity.
Equity percentage = Net worth / (Net worth + Liabilities)
Liabilities.
Liabilities percentage = (Current liabilities + Noncurrent liabilities) / (Net worth + Liabilities)
Aportación.
Contribution = Share capital : Number of shareholders (or number of shares according to the problem)
Economicfinancial balance.
Balance. Noncurrent assets + Working capital = Long term resources or Noncurrent assets + Working capital = Net worth + Noncurrent liabilities
Annual depreciation expense.
Annual depreciation expense = (Countable value – Salvage value) : Number of years
Economic and financial profitability.
Economic profitability = Profit before interests and taxes : Assets
Liabilities = Assets x Liabilitites percentage
Interests = Liabilities x Interest rate
Countable profit = Profit before interests and taxes  interests
Financial profitability = (Profit before interest and taxes – Interests  Taxes) : Net wort
Taxes = (Profit before interests and taxes  Interests) x Tax rate
Stock market value.
Stock market value = Quotation x Number of shares
Price Earnings rate.
PER = Quotation : Dividend
Cashflow.
Cashflow = Countable profit + Amortization – Taxes
Countable profit = Profit before interests ans taxes  Interests
Equity.
Equity = Long term capitals – Noncurrent liabilities