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If you're looking for the IB Business Management formula sheet, you've come to the right place! Below you'll find all relevant formulas, with explanations and notes.
IB Business Management Formula Sheet
Formulae for ratio analysis (SL/HL)
Profitability ratios SL/HL)
| Name | Formula | Notes/Annotations |
|---|---|---|
| Gross profit margin | (Gross profit/Sales revenue) × 100 | Common mistake: Using net profit instead of gross profit; they are different measures. |
| Profit margin | (Profit before interest and tax/Sales revenue) × 100 | Remember: Higher profit margin indicates better control over operating costs relative to sales. |
| Return on capital employed (ROCE) | (Profit before interest and tax/Capital employed) × 100 where capital employed = non-current liabilities + equity | Common mistake: Using total assets instead of capital employed; include only equity and non-current liabilities. |
Liquidity ratios (SL/HL)
| Name | Formula | Notes/Annotations |
|---|---|---|
| Current ratio | Current assets/Current liabilities | Remember: A ratio above 1 generally indicates good liquidity, but too high may indicate inefficient use of assets. |
| Acid test (quick ratio) | Current assets-stock/Current liabilities | Common mistake: Forgetting to subtract stock from current assets. |
Efficiency ratios (HL only)
| Name | Formula | Notes/Annotations |
|---|---|---|
| Stock turnover (number of times) | Cost of sales/Average stock where cost of sales is an approximation of total credit purchases | Remember: Extremely high turnover may indicate insufficient stock levels, risking lost sales. |
| Stock turnover (number of days) | (Average stock/Cost of sales) × 365 where cost of sales is an approximation of total credit purchases and Average stock = Opening stock + Closing stock)/2 | Remember: Extremely low days may indicate stock shortages, while very high days suggest slow-moving inventory. |
| Debtor days ratio (number of days) | (Debtors/Total sales revenue) × 365 where total sales revenue is an approximation of total credit sales | Remember: High debtor days may indicate cash flow problems or weak credit control. |
| Creditor days ratio (number of days) | (Creditors/Cost of sales) × 365 where cost of sales is an approximation of total credit purchases | Remember: Extremely long creditor days may indicate liquidity issues or strained supplier relations. |
| Gearing ratio | (Non-current liabilities/Capital employed) × 100 where Capital employed = Non-current liabilities + Equity | Common mistake: Using total liabilities instead of just non-current liabilities. |
Other formulae (SL/HL)
Investment appraisal (SL/HL)
| Name | Formula | Notes/Annotations |
|---|---|---|
| Average rate of return (ARR) | [((Total returns - Capital cost) ÷ Years of use)/capital cost] x 100 | Remember: ARR does not account for the timing of cash flows; consider alongside NPV or IRR for investment decisions. |
Investment appraisal (HL Only)
| Name | Formula | Notes/Annotations |
|---|---|---|
| Net present value (NPV) | Σpresent values of return - original cost | Remember: NPV accounts for the timing of cash flows, unlike ARR. |
Capacity utilization and productivity (HL Only)
| Name | Formula | Notes/Annotations |
|---|---|---|
| Capacity utilization rate | (Actual output/Productive capacity) × 100 | Common mistake: Using total possible output instead of productive capacity; ensure the denominator reflects realistic capacity. |
| Productivity rate | (Total output/Total input) × 100 | Remember: Can be applied to labor, materials, or overall production. |
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