Percentages

HA401 : The Class : Finance : Revenues : Percentages

Percentages

CALCULATING PERCENTAGES

Percentages are the result of combining two numbers that define a relationship. A change in one number changes the percentages. Both numbers can also change. When a percentage changes, it is important to know what caused the change or which number changed.

For example:

Wage cost % equals wage expense / revenues or $350 wage expense / $1,000 revenue = 35% wage cost
Wage cost % can go up in two ways $400 wage expense / $1,000 revenue = 40% wage cost
$350 wage expense / $ 875 revenue = 40% wage cost

In this example wage cost % went up for two different reasons.

WHAT PERCENTAGES MEASURE

Percentages measure relationships and changes. An example of relationships is the wage cost example above. A 35% wage cost means that 35 cents out of every revenue dollar is used to pay wage costs. If food cost is 40%, that means 40 cents out of every revenue dollar is used to pay for food expenses. Naturally, to improve profitability, wage cost percentage should go down as a result of higher revenues or lower wage expenses. An example of percentage changes is if our revenues increase from $1,000 to $1,200, they have gone up $200. To calculate the percentage change divide the $200 increase by the original $1,000 revenue and the result is a 20% increase in revenues. Percentage changes can be calculated for revenues, expenses, profits or any other amount that changes.

Once you have completed this module you should:

Go on to Reading 4: Sales Mix Percentages and Profit Percentages
or
Go back to Topic 1: Revenues

E-mail Lloyd Shelton at Lloyd.Shelton@nau.edu
or call (928) 527-7518