2.7 Percentages

Percentages also indicate proportions. They can be expressed either as fractions or as decimals:

45% = 45/100 = 0.45

7% = 7/100 = 0.07

Their unique feature is that they always relate to a denominator of 100. Percentage means simply ‘out of 100’, so 45% is ‘45 out of 100’, 7% is ‘7 out of 100’, etc.

A business is offered a loan to a maximum of 80% of the value of its premises. If the premises are valued at £120,000 then the company can borrow the following:

£120,000 x 80% = £120,000 x 0.80 = £96,000.

Fractions and decimals can also be converted to percentages.

If a machine is sold for £120 plus VAT (Value Added Tax – an indirect tax in the UK) at 20% then the actual cost to the customer is:

£120 x (20% of 120) = £120 + (0.20 x 120) = £144

Alternatively, the amount can be calculated as

£120 + (100% + 20%) = £120 x (1.00 + 0.20) = £120 x 1.20 = £144

If the machine were quoted at the price including VAT (the gross price) and we wanted to calculate the price before VAT (the net price), then we would need to divide the amount by (100% + 20%) = 120% or 1.2. The gross price of £144 divided by 1.2 would thus give the net price of £120. This principle can be applied to any amount that has a percentage added to it.

For example, a restaurant bill is a total of £50.40 including a 12% service charge. The bill before the service charge was added would be:

£50.40 / 1.12 = £45.00