Real World Math Skills

Business Formulas And Usage




  1. Net Income Formula
  2. Formula: Net Income = Revenue – Expenses
  3. Shows your business’s profit or loss over a period. Negative results indicate a net loss.

  4. Example: Revenue = $25,000, Expenses = $30,000 Net Income = -$5,000 (Net Loss).

  5. Accounting Equation

  6. Formula: Assets = Liabilities + Equity
  7. Ensures your balance sheet is balanced.
  8. Alternate Formula: Equity = Assets – Liabilities.

  9. Example: Liabilities = $12,000, Equity = $20,000 Assets = $32,000.

  10. Cost of Goods Sold (COGS)

  11. Formula: COGS = Beginning Inventory + Purchases – Ending Inventory
  12. Tracks production costs during a period.

  13. Example: Beginning Inventory = $2,000, Purchases = $3,000, Ending Inventory = $1,000 COGS = $4,000.

  14. Break-Even Point

  15. Formula: Break-even Point = Fixed Costs / (Sales Price per Unit – Variable Costs per Unit)
  16. Determines units needed to sell to break even.

  17. Example: Fixed Costs = $2,500, Sales Price = $2.95, Variable Costs = $1.40 Break-even Point 1,613 units.

  18. Return on Investment (ROI)

  19. Formula: ROI = [(Investment Gain – Cost of Investment) / Cost of Investment] × 100
  20. Measures profitability of an investment.

  21. Example: Investment Gain = $8,000, Cost = $5,000 ROI = 60%.

  22. Profit Margin

  23. Formula: Profit Margin = (Net Income / Revenue) × 100
  24. Indicates the percentage of revenue retained as profit.

  25. Example: Net Income = $2,000, Revenue = $8,000 Profit Margin = 25%.

  26. Current Ratio

  27. Formula: Current Ratio = Current Assets / Current Liabilities
  28. Shows ability to cover short-term debts.

  29. Example: Current Assets = $10,000, Current Liabilities = $10,000 Current Ratio = 1 (Assets equal liabilities).

  30. Markup Formula

  31. Markup Percentage Formula: Markup % = [(Revenue – COGS) / COGS] × 100
  32. Selling Price Formula: Selling Price = (COGS × Markup %) + COGS

  33. Example: Revenue = $700, COGS = $300 Markup % = 133.33%.

    • If Markup % = 70%, Selling Price = ($300 × 0.70) + $300 = $510.

  34. Inventory Shrinkage

  35. Formula: Inventory Shrinkage = [(Recorded Inventory – Actual Inventory) / Recorded Inventory] × 100
  36. Tracks inventory lost due to damage, theft, etc.
  37. Example: Recorded Inventory = 500, Actual Inventory = 375 Shrinkage = 25%.

Pro Tip: Use these formulas to evaluate your business’s financial health, set data-driven prices, and optimize operations effectively!

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