Finances are and will be a part of our lives, no matter which vocation we choose and which career we select. During our lives, we make a large number of decisions, both on the business and private level, which have significant financial consequences. Therefore, it is important that you have a basic knowledge of some financial principles and rules.
Financial consequences are present in literally every business decision, so non-financial managers and executors must know finances well to include them in their business decision-making process. Previously, it particularly refers to employees in the sales function, who when working with clients, make significant decisions with serious consequences for their business.
Basis points are one of the most important things to calculate when it comes to finances. But what is it actually? Simply put, the basis point is one-hundredth of one percent. It helps us to determine which part of a sum we already have will be important to use. For example, it will show us which percent of our salary will be deducted after taxes.
What is basis point calculator?
Basis point calculator is a simple software that will help you calculate the percentage of a sum you have. It’s simple to use and will provide you with the answer in a second. Sometimes the amount of the payment is not stated in the form of a certain amount but in the form of a percentage that is paid.
This usually happens in cases where the starting amount is not known in advance, for example, the percentage of wages or the cost of the product. In order to calculate the interest that is payable, it is enough to know the size of the interest rate and the amount from which the interest is calculated.
Basis points formula
BPS = (final percentage – initial percentage) * 100
The best way to explain how this works is to see the following example. If the number of smokers decreased from 21% to 14% we will calculate basis points by deducting the second number from the first one and multiplying it with 100. In this case, we will see that the smokers’ rate decreased by 70 bps.
We can also calculate percentages by using bps, and here is the example for it:
Let’s say that for most goods in a country, the VAT rate is 20%. VAT is included in the selling price of goods. So, what is the percentage share of VAT in the selling price of goods? The price of goods without VAT should be $100. Then VAT is 100 · 0.20 = 20 % When we use that result, our sales price will be: 100 + 20 = $120. We will get the VAT of our sales price by dividing our sales price from VAT and multiplying it by 100%, which will result in a VAT rate of 16.67%.
What are the benefits of the basis point calculator?
Improving the financial literacy of employees, especially those who participate in the sales process
It includes:
- a better understanding of management reports and the need for them;
- knowledge of the basics of finance accelerates decision-making processes as well as practical knowledge and implementation of decisions;
- raising the level of competencies of managers, so their decisions become better with a new view of the business;
- creating preconditions for the introduction of a system of responsibility for the achieved results.
Improving data analytics with the aim of estimating the value of investments
Basis point calculator can help you to determine how much money you can invest. In principle, if you go with smaller and limited amounts, you can do better than in cases where you give more money in the beginning.
Raising awareness of the consequences of business decisions on financial results
By calculating everything you need, you can make a backup plan easier, so shutting down your business will have minor consequences for your future life. If you have planned, you have probably set a limit of persistence, a limit to which you can borrow, a model of borrowing, defined priorities, and signals from the market that you will follow.
Promotion and market introduction create costs that you have to count on at the time of appearance. Remember that at the very beginning, these costs will be higher than your income. If you calculate bps and send the right signal to the market and meet customer expectations, revenue will grow much faster and increase the chance from the loss zone to the gain zone.
Helping you answer these questions:
- Is saying “the more the better” right?
- How much do we have to sell if we grant a 3% discount to all customers?
- How much do we have to sell if we grant a 3% discount only to certain categories of customers?
- How much discount will be given for the advance payment and what are the consequences?
- What ratio of the discount can we give to customers with the interest that banks charge us?
- How much would we produce if we work at the full capacity of one product category?
- What selling price can be in some conditions?
- Which products or groups of products affect liquidity, profit, and business profitability?
- Which customers affect liquidity, profit, and business profitability?
Who is the calculator most intended for?
- Non-financial managers who need to understand the basics of financial principles and mathematical calculations;
- Employees in different sales channels (retail, wholesale, direct sales) and at different hierarchical levels (from salesperson to sales manager);
- All those who want to learn how to measure the results of business decisions;
- Those who have the opportunity to decide on cooperation and the conditions of that cooperation with certain partners. With that information, they will increase the likelihood of making the right decision;
- It is especially useful for beginners in finance. The calculator allows them to easily recognize and learn how to apply the basic principles of finance and mathematics in the decision-making process.
- For economic entities and citizens, banks, insurers, financial institutions, etc.