Free interactive reference

IB Business Management HL Formula Sheet

A searchable IB Business Management HL formula sheet with break-even, profitability, liquidity, efficiency, investment appraisal, forecasting, and operations tools.

These formulas are rendered as real mathematics rather than images. Read the definition, check every variable, and follow the topic link to see the idea in context. Always confirm the permitted official booklet or sheet for your examination session.

Reference section

A · Decision-Making

Expected value (decision trees)

EV=∑(Probability×Financial Outcome)EV = \sum (\text{Probability} \times \text{Financial Outcome})

Sum the probability-weighted outcome of every branch from a decision node — used to compare choices under uncertainty.

Reference section

C · Costs, Revenue & Break-Even

Total cost, revenue & contribution

TC=FC+(VC×Q)TR=P×QContribution/unit=P−VCTC = FC + (VC \times Q) \qquad TR = P \times Q \qquad \text{Contribution/unit} = P - VC

Contribution per unit is what each unit sold contributes toward covering fixed costs, after its own variable cost.

FCFC
total fixed costs
VCVC
variable cost per unit
QQ
quantity
PP
selling price per unit

Break-even point

BEP=FCP−VCBEP = \frac{FC}{P - VC}

The output level at which total revenue equals total cost — zero profit, zero loss.

FCFC
total fixed costs
P−VCP-VC
contribution per unit

Margin of safety

Margin of Safety=Actual (or Budgeted) Output−BEP\text{Margin of Safety} = \text{Actual (or Budgeted) Output} - BEP

How far current output is above the break-even point — a buffer against falling sales before losses begin.

Reference section

C · Profitability & Liquidity Ratios

Gross profit margin

GPM=Gross ProfitSales Revenue×100GPM = \frac{\text{Gross Profit}}{\text{Sales Revenue}} \times 100

Gross profit as a % of revenue — reflects pricing and direct production cost control.

Net profit margin

NPM=Net ProfitSales Revenue×100NPM = \frac{\text{Net Profit}}{\text{Sales Revenue}} \times 100

Profit after ALL expenses, as a % of revenue — reflects overall operating efficiency.

Return on capital employed (ROCE)

ROCE=Profit before Interest and TaxCapital Employed×100ROCE = \frac{\text{Profit before Interest and Tax}}{\text{Capital Employed}} \times 100

How efficiently the business generates profit from the capital invested in it.

Capital Employed\text{Capital Employed}
non-current liabilities + equity

Current ratio

Current Ratio=Current AssetsCurrent Liabilities\text{Current Ratio} = \frac{\text{Current Assets}}{\text{Current Liabilities}}

Tests whether a business can meet its short-term debts using its short-term assets. Usually written "x : 1".

Acid test (quick) ratio

Acid Test Ratio=Current Assets−InventoryCurrent Liabilities\text{Acid Test Ratio} = \frac{\text{Current Assets} - \text{Inventory}}{\text{Current Liabilities}}

A stricter liquidity test that excludes inventory, the current asset slowest to convert to cash.

Reference section

C · Efficiency Ratios (AHL only)

Inventory (stock) turnover

Inventory Turnover=Cost of Goods SoldAverage Inventory\text{Inventory Turnover} = \frac{\text{Cost of Goods Sold}}{\text{Average Inventory}}

How many times inventory is sold and replaced in a period — can also be expressed in days as 365 ÷ this figure.

Debtor (accounts receivable) days

Debtor Days=Accounts ReceivableSales Revenue×365\text{Debtor Days} = \frac{\text{Accounts Receivable}}{\text{Sales Revenue}} \times 365

The average number of days customers take to pay — a rising figure signals weakening credit control.

Creditor (accounts payable) days

Creditor Days=Accounts PayableCost of Goods Sold×365\text{Creditor Days} = \frac{\text{Accounts Payable}}{\text{Cost of Goods Sold}} \times 365

The average number of days a business takes to pay its own suppliers.

Gearing ratio

Gearing=Non-Current LiabilitiesCapital Employed×100\text{Gearing} = \frac{\text{Non-Current Liabilities}}{\text{Capital Employed}} \times 100

The proportion of a business's capital that comes from long-term debt rather than equity — above ~50% is considered highly geared (higher financial risk).

Reference section

C · Investment Appraisal

Payback period

Payback=Years to recover+Remaining amount to recoverNet cash flow in the following year\text{Payback} = \text{Years to recover} + \frac{\text{Remaining amount to recover}}{\text{Net cash flow in the following year}}

How long an investment takes to repay its initial cost from net cash inflows. Ignores the time value of money and any returns after payback.

Average rate of return (ARR)

ARR=Average Annual ProfitInitial Investment×100ARR = \frac{\text{Average Annual Profit}}{\text{Initial Investment}} \times 100

Average annual profit as a % of the initial cost — allows comparison against a target rate of return or other investments.

Net present value (NPV) — AHL only

NPV=∑(Net Cash Flow×Discount Factor)−Initial InvestmentNPV = \sum(\text{Net Cash Flow} \times \text{Discount Factor}) - \text{Initial Investment}

Discounts every future cash flow to today's value (since money now is worth more than the same money later) before comparing total value against the initial cost. NPV > 0 means the investment is worthwhile at that discount rate.

Discount Factor\text{Discount Factor}
looked up from a discount table for the chosen rate and year

Reference section

D · Marketing

3-point moving average

MAn=yn−1+yn+yn+13MA_n = \frac{y_{n-1}+y_n+y_{n+1}}{3}

Smooths short-term/seasonal fluctuation out of a time series to reveal the underlying trend — centred on the middle period of each group.

Reference section

E · Operations

Capacity utilisation

Capacity Utilisation=Actual OutputMaximum Possible Output×100\text{Capacity Utilisation} = \frac{\text{Actual Output}}{\text{Maximum Possible Output}} \times 100

How much of a business's maximum production capacity is actually being used — low utilisation means high average fixed costs per unit.

Reviewed by the Study to Learn editorial team · Updated 2026-07-24