BASE, RATE AND PERCENTAGE

Problems concerning commissions and

overrides, trade and sales discounts,
depreciation using periodic rates, analysis
of financial statement and a lot more
business problems are solved with the use
of the basic formula showing the
relationship between the base, the
percentage and the rate.
BASE, RATE AND PERCENTAGE
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Using the basic formula P = BR, we

substitute and see that our relationship
and solution are correct:
P = B x R
20,000.00 = 200,000.00 x 10%
20,000.00 = 20,000.00
BASE, RATE AND PERCENTAGE
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In business, decision makers like managers,

owners and creditors use the financial
statements issued by a company to make
financial analysis to arrive at basic decisions
like planning to continue the business
owners, maintaining or changing current
plans for managers and continuing to grant
credit for creditors.
BASE, RATE AND PERCENTAGE
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Assuming a delivery vehicle is depreciated

at the rate of 10% annually and it cost
P200,000.00 The yearly depreciation of
the vehicle will be P200,000.00 X 10% =
20,000.00. The Base here is the cost of the
vehicle, P200,000.00, the rate is the 10%
and the percentage is 20,000.00.
BASE, RATE AND PERCENTAGE
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In financial analysis, we determine the

percent of increase or decrease in sales or
net profit.
In this case, we use our knowledge on
Base, Rate and Percentage.
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BASE – (B) refers to that number of

which a certain number of hundredths is
taken. It is that number to which another
number called percentage is compared to
obtain the rate. It is called the base
because it is the basis of comparison.
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RATE – (R) refers to the number of

hundredths taken. It is the result of
comparing a number (percentage which
is regarded as the portion or part) to
another number (base which is regarded
as the whole). It can be expressed in
percent, decimal or fraction.
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PERCENTAGE – (P) is the part

considered in the quantitative relation to
the whole. In other words; it is the part
of the whole. It is the number being
compared to another number (base). It
is the result obtained when the rate is
applied to the base.
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FORMULA:

•  PERCENTAGE (P) = BASE X RATE or

P=BXR

•  BASE (B) = PERCENTAGE/RATE

or B = P/R
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FORMULA:

•  RATE (R) = PERCENTAGE/BASE

or R = P/B

•  THE RATE OF INCREASE/(DECREASE)

is equal to: (Q2 – Q1)/Q1
(Where Q1 – Original Quantity ; Q2 – New Quantity)
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If any of the two elements are given, the

remaining element can be solved for. It is
however important that we be able to
identify which is the base, and which is the
percentage. The rate is easy to identify
because it is generally expressed in percent
but it can also be expressed in fraction or in
decimal.
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Ratios are generally used in business in

cases of partnership sharing of profit and
loss. Assuming that X, Y and Z are
partners sharing profits and losses in the
ratio of 1:2:3, respectively. If the
partnership incurred a net loss of
P10,000.00 for the month, the share of
the partners in the loss would be:
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Take note that if we add the ratios, we get

6/6 or one which means one whole. It is
the total of the shares if added giving us
10,000.00.
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RATIO is the relation between two

numbers or two magnitudes of the same
kind. The expressions 1:2 (read as one is
to two) ½ and 1 divided 2 indicates ratios.
We are actually comparing or showing the
relationship between 1 and 2.
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There are two ways of finding the ratio:

1.  Division
Example - If there are 20 boys and 30
girls, we find the ratio by dividing 20
boys by 30 girls and reduce it to lowest
terms, that is, 20/30 = 2/3 = 2:3
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2.  Comparing numerators of fractions

with the same denominator.
Example - If we have a total of 100 T-
shirts of 30 small-sized, 50 medium-
sized, and 20 large-sized T-shirts, we
have: 30/100 – small; 50/100 – medium
and 20/100 – large.
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To get the ratio, we compare the

numerators; hence, we say that the ratio of
small:medium:large is 30:50:20 or 3:5:2.
Adding all the numerators should give us
the denominator. To check, 30 + 50 + 20
=100. This is because the total of the parts
equals the whole. The notion of ratio is the
same as the use of fractions in business.
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PROPORTION refers to the equality

between ratios. The following are
proportions:
a. 1:2 = 8:16 b. 9/3 = 81/27
A proportion is simply a statement that two
ratios are equal. It can be written in two
ways: as two equal fractions a/b = c/d; or
using a colon, a:b = c:d.
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In problems involving proportions, we can

use cross products to test whether two
ratios are equal and form a proportion.

To find the cross products of a proportion,

we multiply the outer terms, called the
extremes, and the middle terms, called the
means.
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Our rule concerning proportions is that “the

product of the means equals to the product
of the extremes”.
•  In our example (a) 2 X 8 = 1 X 16 the
product is 16.
•  In our example (b) , applying the rule, we
cross multiply the means and the extremes.
9 X 27 = 3 X 81 the product is 243.
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Cross Multiplication is the same as

multiplying the means and multiplying the
extremes. Expressing our fraction above as
proportion, we have 9:3 = 81:27. Where 3
and 81 are our means and 9 and 27 are our
extremes. So we multiply the means 3 and
81 to obtain 243, and the extremes 9 and 27
to obtain 243.
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Proportion is used to show how quantities

and amounts are related to each other. The
amount that quantities change in relation to
each other is governed by proportion rules.
THREE TYPES OF PROPORTION
1.  DIRECT PROPORTION – a number is
directly proportionate to another when as
one value increases, so does the other.
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DIRECT PROPORTION –
Example: if 3 notebooks cost P15.00, how
many notebooks can you buy with
P60.00? The number of notebooks is
directly proportional to the cost.
3/P15.00 = X/P60.00
X = (3) (60)/15 = 180/15 = 12 Notebooks.
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INDIRECT/INVERSE PROPORTION- Example:

The relation between the times it takes to dig a
well and install a water pump to supply the house
with water and the number of people needed to
build it is an inverse proportion. The more
people you have, the less time it takes. If it takes
3 people to do the job in 1 month, it will take only
½ month if you have 6 people working.
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3.  PARTITIVE PROPORTION – involves

identifying parts of a whole based on a
given ratio of these parts.
Example: When a partnership agreement
stipulates an agreed capitalization of
P100,000.00 and the partners are to divide
the said capitalization in the ratio of 1:2:2,
we are talking about partitive proportion.
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And we get the corresponding parts as

follows assuming the partners are X, Y,
and Z, respectively, contributing the
capital:
 BUSINESS APPLICATIONS
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BUSINESS APPLICATIONS
•  Partnership use ratio and proportion in
their operations, particularly in the
division of profit/losses and capital
contribution of partners.
•  Individuals pay taxes and business
entities and the knowledge of base, rate
and percentage are used.
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•  In computing taxes, we multiply the

base, be it income, sales or whatever is
being taxed by the taxed rate.
•  I n a c c o u n t i n g a n d m a n a g e m e n t ,
financial analysis of the financial
statement makes use of what is termed
as vertical analysis, horizontal analysis
and ratio analysis.
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•  Vertical Analysis is concerned with

comparison of figures in a single
financial statement. Preparation of
common-size financial statements
makes use of vertical analysis. Total
assets are used as 100% in the balance
sheet and net sales are used as 100% in
the income statement.
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•  Ratio Analysis is a form of vertical

analysis. This is called as such because
it is used to determine certain ratios
important in business decision making,
like determining profitability ratios,
liquidity ratios, solvency ratios, asset
utilization ratios, etc.
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•  P r o f i t a b i l i t y R a t i o s s h o w h o w
profitable a firm is and also measures
the return or earnings on investments.
•  Liquidity/Solvency Ratios are used to
gauge ability of a firm to pay its
obligations or debts.
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•  Liquidity ratios refer to the ratios used

to gauge if the company can meet its
current liabilities, those that need to be
paid within the current year.
•  Solvency ratios are concerned with
meeting the long-term obligations of the
company, those maturing in more than
one year.
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•  Horizontal Analysis also known as Trend

Analysis refers to comparing figures of
financial statement of one period with the
figures of financial statement of another
period. It is called trend analysis because it
shows the trend-whether increasing or
decreasing – of certain accounts, say sales or
net income.