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Index

• Why Study Maths?

• What is Business Mathematics?

• Commercial Maths

• The Mathematics of Business

• Role of Maths in Business Decisions

• Where to Use Maths in Business?

• Links
Why Study Maths?
Like it or not, maths is used in most aspects of daily life.
Math is an integral part of life. It has a definite role to
play in every body's life.

It is in demand both by lay


men and educated people.
Lay men or service men use
math to add, subtract,
multiply or divide.

A grocer adds up all the


price of the purchases.
When he has to give back
some money, he subtracts.
When we buy more than a kilogram of tomatoes, say
2kgs of tomatoes, he uses multiplication table. When we
want half a kilogram of tomatoes, he divides the price of
1 kilogram by 2.

Math is important before a child is born on earth.


Doctors calculate the month of pregnancy to give the
right medicine to the expectant mothers. The growth of
the child in the womb is measured. After birth, the
injections and polio drops are to be given at the right
time in the right doses all of which involves math
calculation.

One of the reasons why math is important is in


agriculture. Every nation has to feed its growing
population. The population of the world grows in
exponential terms but the agricultural land is the same.
Hence the math calculation involves such terms as how
to get more yield quality wise from the same land to
feed the growing population.

Many of the top jobs such as business consultants,


computer consultants, airline pilots, company directors
and a host of others require a solid understanding of
basic maths, and in some cases require a quite detailed
knowledge of maths.

You may think that you would like to program computer


games as a job, but don't bother to do well at maths,
you'll end up receiving lots of "Unfortunately you have
been unsuccessful……" letters.

Even though programming of computer games seems to


be unrelated to maths, it is full of mathematical
techniques such as effects of translation, rotation,
symmetry, coordinate geometry, vectors, angles,
bearings etc.

"Why do business consultants and directors need to


know maths?" you may ask. Business is all about selling
a product or service to make money. All transactions
within a business have to be recorded in the Company
accounts and quite often involve very large sums of
money. So for example, you need to be able to estimate
the effect of changing numbers in the accounts when
trying to work out your expected performance for next
year. Also businesses rely heavily on using percentages,
in particular anyone who works as a sales person will
need to be quick at mental arithmetic, approximation
and in working out percentages. The more percentage
discount you give a customer when you sell them a
product, the less profit your company will make (and
quite often the less you will be paid!) so it really does
pay to know your maths.
This project highlights the uses,
need and benefits of business math
from the perspective of a general
business activity. It begins with
more simple money math including
decimals, place value, addition,
subtraction, and percentages. It
continues with earning money,
income and wages, taxes, checking
accounts, bank savings accounts,
investments, and more consumer
math skills.
What is Business Mathematics?

Business mathematics is mathematics used by commercial


enterprises to record and manage business operations.
Commercial organizations use mathematics in accounting,
inventory management, marketing, sales forecasting, and
financial analysis. Mathematics typically used in commerce
includes elementary arithmetic, elementary algebra, statistics
and probability. Business management can be made more
effective in some cases by use of more advanced mathematics
such as calculus, matrix algebra and linear programming.

In academia, "Business
Mathematics" includes
mathematics courses taken
at an undergraduate level by
business students. These
courses are slightly less
difficult and do not always go
into the same depth as other
mathematics courses for
people majoring in
mathematics or science
fields. The two most common math courses taken in this form
are Business Calculus and Business Statistics.

An example of the differences in coursework from a business


mathematics course and a regular mathematics course would
be calculus. In a regular calculus course, students would study
trigonometric functions. Business calculus would not study
trigonometric functions because it would be time-consuming
and useless to most business students, except perhaps
economics majors. Economics majors who plan to continue
economics in graduate school are strongly encouraged to take
regular calculus instead of business calculus, as well as linear
algebra and other advanced math courses, especially real
analysis.
Commercial Maths
Another meaning of business mathematics, sometimes called
commercial math or consumer math, is a group of practical
subjects used in commerce and everyday life. In schools, these
subjects are often taught to students who are not planning a
university education. In the United States, they are typically
offered in high schools and in schools that grant associate's
degrees.

A U.S. business math course might


include a review of elementary
arithmetic, including fractions,
decimals, and percentages.
Elementary algebra is often included
as well, in the context of solving
practical business problems. The
practical applications typically
include checking accounts, price
discounts, markups and markdowns,
payroll calculations, simple and
compound interest, consumer and
business credit, and mortgages.

In these courses is on computational skills and their practical


application, with practical application being predominant. For
instance, while computational formulas are covered in the
material on interest and mortgages, the use of prepared tables
based on those formulas is also presented and emphasized.
The Mathematics of Business

While you are running a business you often come across


situations where you have to calculate payments,
incomes, wages, interest etc. To deal with such day to
day needs of your business you need maths.

Incurring debt and making a series of payments to reduce this


debt to nil is something we all must do in our lifetime as we
make purchases that would only be feasible if we are given
sufficient time to pay down the amount of the transaction. This
is referred to as 'amortizing' a debt. Here is an example to
explain Simple Debt Amortization.

The basic definitions required for someone to understand the


concept are:
1. Principal - the initial amount of the debt, usually the price of
the item purchased.
2. Interest Rate - the amount one will pay for the use of
someone else's money. Usually expressed as a percentage so
that this amount can be expressed for any period of time.
3. Time- essentially the amount of time that will be taken to
pay down (eliminate) the debt. Usually expressed in years, but
best understood as the number of and interval of payments, i.e.,
36 monthly payments.

Simple interest calculation follows the formula:


I= PRT, where
I=Interest
P=Principal
R= Interest Rate
T= Time.

The challenge: John decides to buy a car for his business. The
dealer gives him a price and tells him he can pay on time as
long as he makes 36 installments and agrees to pay six per cent
interest (6%). The facts are:
Agreed price 18,000 for the car, taxes included.

3 years or 36 equal payments to pay out the debt.

Interest rate of 6%.

The first payment will occur 30 days after receiving the loan.
A simple timeline will give you an idea of the question we need
to address.

To simplify the problem, we know the following:

1. The monthly payment will include at least 1/36th of the


principal so we can pay off the original debt.

2. The monthly payment will also include an interest component


that is equal to 1/36 of the total interest.

3. Total interest is calculated by looking at a series of varying


amounts at a fixed interest rate.

Take a look at this chart reflecting our loan scenario.


This picture shows the calculation of interest for each month,
reflecting the declining balance outstanding due to the principal
pay down each month . ( 1/36 of the balance outstanding at the
time of the first payment.,., in our example 18,090/36 = 502.50)
By totaling the amount of interest and calculating the average,
you can arrive at a simple estimation of the payment required
to amortize this debt. Averaging will differ from exact because
you are paying less than the actual calculated amount of
interest for the early payments, which would change the
amount of the outstanding balance and therefore the amount of
interest calculated for the next period.

Understanding the simple effect of interest on an amount in


terms of a given time period and realizing that amortization is
nothing more than a progressive summary of a series of simple
monthly debt calculations should provide a person with a better
understanding of loans and mortgages. The math is both simple
and complex; calculating the periodic interest is simple but
finding the exact periodic payment to amortize the debt is
complex.
Role of Maths in Business Decisions

The role of mathematics in Business decisions has very


important in the process of managerial decision models
and algorithms. Mathematics can provide powerful
support for business decisions. In their later business
careers, this will motivate them to consult with
mathematicians and employ effective quantitative
methods.

To turn to the specific aspects of the quantitative


decision making process, it is possible to recognize three
distinct phases in every decision situation. First is
carefully defined the problem. Second is a conceptual
model to be generated and third is the selection of the
appropriate quantitative model that may lead to a
solution.

Finally a specific algorithm is selected. Algorithms are


the orderly delineated sequences of mathematical
operations that lead to a solution. The algorithms
generate the decision which is subsequently
implemented managerial action program.

The entire process is shown below:


Where to Use Maths in Business?

Different business activities have different working ways and


methods. Also their needs and requirements are different.
Taking in view a general business activity, the businessman or
entrepreneur will have to make use of maths in the following
fields-

1. Exchanging Goods and Services- while


making purchase or sale of goods and
services, a businessman will have to make
certain additions, subtractions,
multiplications, divisions, percents and
percentages, fractions, decimals,
estimations and rounding offs.

2. Earning Money- income and wages are to be


calculated keeping in mind various factors
including performance, efficiency, results
attained, working hours etc. They again
entail an individual to make use of maths.
Maths helps in understanding earnings
statements, time card sheets, income, health insurance,
deductions and other aspects related to earning and
making money.

3. Paying Taxes- paying taxes is a must for


both the businessman as well as the service
employee. Knowing what tax is not enough,
one must also learn how to calculate the
same. This can be learned with the help of maths
through its basic tax calculating techniques.

4. Checking Accounts- maths extends a helping


hand to your business by teaching you
techniques and ways of operating and
managing its checking accounts. With the
help of maths you can learn to write a check,
make checking account deposits and
withdrawals, manage and balance your checkbook and
checkbook reconciliation.

5. Savings Accounts- through maths one can


easily attain a basic understanding of
banking and interest rate as it is a
fundamental money skill.

6. Spending Money and Consumer Math- maths


also guides an individual about discounts,
needs and wants, receipts, tipping,
estimation, comparison shopping, invoices
and lots more so as to run his business
effectively and efficiently.
7. Investing- this section of business deals with
investing money and money management.
Through maths one can learn basic investing
and financial concepts including stocks, the
stock market, interest, income statements,
buying stocks, calculating shares purchased,
percentage change in share price, how to read a stock
table and security pricing.

8. Budgeting- maths can also be used to learn


budgeting lessons that teach real life basic
budget concepts.

9. Exchange Rates- if your business deals


internationally then you must learn the
mathematical lesson to convert one currency
into another. This conversion method is also
called foreign exchange rate.

10. Profit and Loss Statement- profit and loss


statement is a basic worksheet of a businesses'
profitability. Every business must maintain the
same. Again maths plays a basic role in creating
and maintaining a P&L statement.
11. Business Decisions- last but not the least,
maths (basic algebra) proves to be highly
useful in making financial or monetary
decisions in a business.

References
• http://www.moneyinstructor.com/business.asp
• http://www.scribd.com/doc/12243159/Role-of-Mathematics-in-Business
• http://en.wikipedia.org/wiki/Business_mathematics
• http://www.businessweek.com/magazine/content/06_07/c3971027.
htm
• http://wiki.answers.com/Q/Role_of_mathematics_in_Business_decisi
ons
• http://mathforum.org/dr/math/faq/faq.why.math.html
• http://math.about.com/od/businessmath/tp/businessmathtp.htm
• http://www.easymaths.com/What_use_is_Maths.htm
• http://answers.yahoo.com/question/index?
qid=20081114200720AA1d51T
• http://answers.yahoo.com/question/index?
qid=20080127161257AAokehW