What you'll learn
- How to calculate percentages, percentage changes and averages in a business context.
- How to work out revenue, costs, profit and average unit cost.
- How to calculate and interpret gross profit margin, net profit margin and average rate of return.
- How to complete key sections of a cash flow forecast.
Why calculation matters in GCSE Business
Business calculations turn quantitative data — numerical information, such as sales revenue or costs — into evidence for decisions. A business might use calculations to decide whether to raise prices, reduce costs, invest in equipment, or arrange finance.
In the exam, you are not just aiming for the correct number. You should also be able to interpret it, which means explaining what the number shows for that specific business.
Memorise the formulae
AQA will not give you the formulae in the exam. Learn the formula, substitute the figures carefully, include units such as £ or %, and then explain what the result means for the business.
Percentages and percentage changes
A percentage means “out of 100”. Businesses use percentages because they make comparisons easier. For example, a profit of £10,000 might sound good, but it means something very different if sales revenue was £20,000 compared with £500,000.
Percentage change
Percentage change shows how much a figure has increased or decreased compared with the original figure.
You need to memorise:
Percentage change=new value−original valueoriginal value×100\text{Percentage change} = \frac{\text{new value} - \text{original value}}{\text{original value}} \times 100Percentage change=original valuenew value−original value×100If the answer is positive, it is an increase. If the answer is negative, it is a decrease.
Calculating percentage change in sales
Aldi’s sales in one local area increased from £40,000 to £48,000.
-
Find the change in sales: £48,000 - £40,000 = £8,000.
-
Divide the change by the original figure and multiply by 100:
£8,000£40,000×100=20%\frac{\pounds 8{,}000}{\pounds 40{,}000} \times 100 = 20\%£40,000£8,000×100=20% -
Interpret the answer: sales increased by 20%, which suggests Aldi sold more products or attracted more customers in that area.
Using the new figure as the denominator
For percentage change, always divide by the original figure, not the new figure. The original figure is the starting point you are comparing against.
Averages
An average is a single figure used to represent a set of numbers. At GCSE Business, this usually means the mean average, found by adding the values and dividing by how many values there are.
You need to memorise:
Mean average=total of valuesnumber of values\text{Mean average} = \frac{\text{total of values}}{\text{number of values}}Mean average=number of valuestotal of valuesCalculating average daily sales
A local café has sales of £420, £380, £450, £500 and £550 over five weekdays.
-
Add the sales together: £420 + £380 + £450 + £500 + £550 = £2,300.
-
Divide by the number of days:
£2,3005=£460\frac{\pounds 2{,}300}{5} = \pounds 4605£2,300=£460 -
Interpret the answer: the café’s mean average weekday sales are £460, which can help the owner plan stock, staffing and cash needs.
Averages need context
An average can hide variation. A café might have average sales of £460, but Friday may be much busier than Monday, so staffing decisions should still consider the pattern of sales.
Revenue, costs and profit
Revenue is the money a business receives from selling goods or services. It is sometimes called sales revenue or turnover.
Costs are the money a business spends. Fixed costs are costs that do not change directly with output, such as rent. Variable costs are costs that change with output, such as ingredients or raw materials.
Profit is what is left after costs are taken away from revenue.
You need to memorise:
Total revenue=selling price×quantity soldTotal variable costs=variable cost per unit×quantity soldTotal costs=fixed costs+variable costsProfit=total revenue−total costs\begin{aligned} \text{Total revenue} &= \text{selling price} \times \text{quantity sold}\\ \text{Total variable costs} &= \text{variable cost per unit} \times \text{quantity sold}\\ \text{Total costs} &= \text{fixed costs} + \text{variable costs}\\ \text{Profit} &= \text{total revenue} - \text{total costs} \end{aligned}Total revenueTotal variable costsTotal costsProfit=selling price×quantity sold=variable cost per unit×quantity sold=fixed costs+variable costs=total revenue−total costsCalculating revenue, costs and profit
A local sole-trader café sells 300 lunches in a week at £5 each. Ingredients cost £2 per lunch. Weekly fixed costs are £600.
-
Calculate total revenue:
£5×300=£1,500\pounds 5 \times 300 = \pounds 1{,}500£5×300=£1,500 -
Calculate total variable costs:
£2×300=£600\pounds 2 \times 300 = \pounds 600£2×300=£600 -
Calculate total costs: £600 fixed costs + £600 variable costs = £1,200.
-
Calculate profit: £1,500 total revenue - £1,200 total costs = £300.
Confusing revenue and profit
Revenue is money from sales before costs are deducted. Profit is the amount left after costs are deducted.
Average unit cost
Average unit cost is the cost of producing one unit on average. It helps a business judge whether its selling price is high enough.
You need to memorise:
Average unit cost=total costoutput\text{Average unit cost} = \frac{\text{total cost}}{\text{output}}Average unit cost=outputtotal costCalculating average unit cost
The café’s total weekly cost is £1,200 and it sells 300 lunches.
-
Identify total cost and output: total cost is £1,200 and output is 300 lunches.
-
Divide total cost by output:
£1,200300=£4\frac{\pounds 1{,}200}{300} = \pounds 4300£1,200=£4 -
Interpret the answer: each lunch costs £4 on average to provide, so selling lunches at £5 gives £1 profit per lunch before any extra changes in cost.
Gross profit margin and net profit margin
Gross profit is sales revenue minus the direct cost of making or buying the goods sold. For a bakery, this could include ingredients.
Net profit is the profit left after all costs and expenses have been deducted.
A profit margin is a profit figure shown as a percentage of sales revenue. This makes it easier to compare businesses of different sizes.
You need to memorise:
Gross profit margin=gross profitsales revenue×100Net profit margin=net profitsales revenue×100\begin{aligned} \text{Gross profit margin} &= \frac{\text{gross profit}}{\text{sales revenue}} \times 100\\ \text{Net profit margin} &= \frac{\text{net profit}}{\text{sales revenue}} \times 100 \end{aligned}Gross profit marginNet profit margin=sales revenuegross profit×100=sales revenuenet profit×100Calculating profit margins
A small bakery has sales revenue of £100,000. The cost of sales is £60,000. Other expenses, such as wages, rent and advertising, are £25,000.
-
Calculate gross profit: £100,000 sales revenue - £60,000 cost of sales = £40,000.
-
Calculate net profit: £40,000 gross profit - £25,000 other expenses = £15,000.
-
Calculate gross profit margin:
£40,000£100,000×100=40%\frac{\pounds 40{,}000}{\pounds 100{,}000} \times 100 = 40\%£100,000£40,000×100=40% -
Calculate net profit margin:
£15,000£100,000×100=15%\frac{\pounds 15{,}000}{\pounds 100{,}000} \times 100 = 15\%£100,000£15,000×100=15% -
Interpret the margins: for every £1 of sales revenue, the bakery keeps 40p as gross profit and 15p as net profit. The net profit margin is lower because it includes more costs.
Margin interpretation
A higher profit margin usually means the business keeps more profit from each £1 of sales, but you should still consider the context, such as competition, quality, staffing and marketing costs.
Average rate of return
Average rate of return, often shortened to ARR, measures the average yearly profit from an investment as a percentage of the amount invested.
An investment is spending money now to try to gain a benefit in the future, such as buying new machinery, opening a shop, or improving a website.
You need to memorise:
ARR=average annual profitinitial investment×100\text{ARR} = \frac{\text{average annual profit}}{\text{initial investment}} \times 100ARR=initial investmentaverage annual profit×100Calculating average rate of return
A JD Sports franchise opportunity would require an initial investment of £20,000. It is expected to make profits of £4,000, £5,000, £7,000 and £8,000 over four years.
-
Add the expected profits: £4,000 + £5,000 + £7,000 + £8,000 = £24,000.
-
Calculate average annual profit:
£24,0004=£6,000\frac{\pounds 24{,}000}{4} = \pounds 6{,}0004£24,000=£6,000 -
Calculate ARR:
£6,000£20,000×100=30%\frac{\pounds 6{,}000}{\pounds 20{,}000} \times 100 = 30\%£20,000£6,000×100=30% -
Interpret the answer: the investment is expected to return an average of 30% per year. This may be attractive, but the business should also consider risk, competition and whether the forecasts are realistic.
Stay within GCSE scope
For AQA GCSE Business, you only need average rate of return for investment appraisal. Do not bring in NPV, payback calculations or other A-Level investment methods.
Cash flow forecasts
Cash flow is the movement of money into and out of a business. A cash flow forecast is a prediction of future cash inflows and outflows, usually month by month.
Cash inflows are money entering the business, such as cash sales, loans or owner’s capital. Cash outflows are money leaving the business, such as wages, stock, rent or loan repayments.
The layout below shows how the key rows of a cash flow forecast connect. Notice that one month’s closing balance becomes the next month’s opening balance.
You need to memorise:
Net cash flow=cash inflows−cash outflowsClosing balance=opening balance+net cash flow\begin{aligned} \text{Net cash flow} &= \text{cash inflows} - \text{cash outflows}\\ \text{Closing balance} &= \text{opening balance} + \text{net cash flow} \end{aligned}Net cash flowClosing balance=cash inflows−cash outflows=opening balance+net cash flowThe opening balance is the cash available at the start of the month. The closing balance is the cash available at the end of the month.
Completing and interpreting a cash flow forecast
A local café has the following forecast.
| Month | Jan | Feb | Mar |
|---|---|---|---|
| Opening balance | £1,200 | ||
| Cash inflows | £5,500 | £6,000 | £7,000 |
| Cash outflows | £6,200 | £5,800 | £6,100 |
| Net cash flow | |||
| Closing balance |
-
Calculate net cash flow for each month by subtracting cash outflows from cash inflows: Jan is £5,500 - £6,200 = -£700, Feb is £6,000 - £5,800 = £200, and Mar is £7,000 - £6,100 = £900.
-
Calculate January’s closing balance: £1,200 opening balance + -£700 net cash flow = £500.
-
Carry the closing balance forward: February’s opening balance is £500. February’s closing balance is £500 + £200 = £700, so March’s opening balance is £700.
-
Calculate March’s closing balance: £700 opening balance + £900 net cash flow = £1,600.
-
Interpret the forecast: January has negative net cash flow, but the café does not run out of cash because it started with £1,200. By March, the closing balance is £1,600, so the short-term cash position has improved.
Thinking cash flow is the same as profit
Cash flow is about when money enters and leaves the business. Profit is revenue minus costs. A profitable business can still have cash flow problems if money leaves before enough cash comes in.
Linking calculations to decisions
The best answers do more than calculate. They use the result to make a business point.
For example, if a café’s average unit cost is £4 and it sells lunches for £5, it may have room for profit, but a rise in ingredient costs could reduce that profit. That links finance to operations and marketing: the owner may need cheaper suppliers, a higher price, or a different menu.
In the exam
-
Write down the formula first, because AQA will not provide it and it helps you structure the calculation.
-
Keep units attached to your answer: use £ for money, % for percentages and “per unit” for average unit cost.
-
Add one sentence of interpretation after the calculation, linked to the business in the question.
Check yourself
- Can you explain the difference between revenue, profit and cash flow?
- Can you calculate gross profit margin and net profit margin from sales revenue, gross profit and net profit?
- Can you complete a cash flow forecast when given inflows, outflows and an opening balance?
