Essential Business Calculations: A Guide to Financial Metrics

Here are key calculations for businesses, including formulas for markup, stock turn, weeks stock, profit margin, and more:

Profit Margins

Gross Profit Margin

Gross Profit Margin = (Revenue – Cost of Goods Sold) / Revenue * 100

Operating Profit Margin

Operating Profit Margin = Operating Profit / Revenue * 100

Net Profit Margin

Net Profit Margin = Net Income / Revenue * 100

Markup

Markup Percentage

Markup % = (Selling Price – Cost) / Cost * 100

Markup to Margin Conversion

Margin = Markup / (1 + Markup)

Inventory Metrics

Inventory Turnover

Inventory Turnover = Cost of Goods Sold / Average Inventory

Weeks on Hand

Weeks on Hand = Accounting Weeks in Period / Inventory Turnover Rate

Stock to Sales Ratio

Stock to Sales (S/S) = Inventory at Beginning of Period / Prior Week Sales

Other Key Metrics

Initial Markup (IMU)

IMU% = (Ticket Price – Cost of Goods Sold) / Ticket Price * 100

Maintained Markup (MMU)

MMU% = (Sale Price – Cost of Goods Sold – Allowances) / Sale Price * 100

Gross Margin Return on Investment (GMROI)

GMROI = Gross Margin / Average Inventory at Cost

Return on Investment (ROI)

ROI = Net Profit / Total Investment

Sales and Revenue

Net Sales

Net Sales = Gross Sales – Returns

Break-Even Point

Break-Even Point = Fixed Costs / (Price per Unit – Variable Cost per Unit)

Pricing

To calculate the selling price for a desired profit margin:
Selling Price = Cost / (1 – Desired Profit Margin)

These formulas provide essential insights into a business’s financial performance, inventory management, and pricing strategies. They help in making informed decisions about profitability, inventory levels, and overall business operations.

Kevin Harrington Partner

Kevin Harrington is a Partner at Exit Factor UK, helping SME owners increase business value & build a rewarding, well-planned exit. Former CMO at BBC Worldwide.

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