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Financial management cheat sheet

In Accounting, Finance on April 25, 2013 at 5:49 pm

accounting_for_non_accountants

Profitability

Return on capital employed
= (operating profit / share capital + reserves + non-current liabilities) x 100

Operating profit margin
= (operating profit / sales revenue) x 100

           Operating profit
= sales revenue – operational costs

Gross profit margin
= (gross profit / sales revenue) x 100

           Gross profit
= sales revenue – cost of sales

Return on ordinary shareholders’ funds
= (net profit after tax and preferential dividend / ordinary share capital and reserves) x 100

Efficiency

Average inventory turnover period*
= (average inventories held / cost of sales) x 365

Average settlement period for trade receivables*
= (average trade receivables / credit sales revenue) x 365

Average settlement period for trade payables*
= (average trade payables / credit purchases) x 365

Sales revenue to capital employed
= sales revenue / (share capital + reserves + non-current liabilities)

Sales revenue per employee
= sales revenue / number of employees

Liquidity

Current ratio
= current assets / current liabilities

Acid test
= current assets (excluding inventories) / current liabilities

Gearing ratio
= (long term liabilities / (share capital + reserves + long term liabilities)) x 100

Interest cover ratio
= operating profit / interest payable

.Investment

Dividend pay-out ratio
= (dividends announced for year / earnings per year available for dividends) x 100

Dividend cover ratio
= (earnings per year available for dividends / dividends announced for year) x 100

Dividend yield
= ((dividend per year / (1 + ‘dividend tax credit’ rate of income tax) / market value per share) x 100

Earnings per year
= earnings available to ordinary shareholders / number of ordinary shares issued

Price/earnings ratio
= market value for share / earnings for share

Cost-volume-profit analysis

Break-even point
Total sales = total costs

Number of units sold at break-end point
= fixed cost / contribution per unit

Number of units sold to achieve target profit
= (fixed cost + target profit) / contribution per unit

Contribution margin ratio
= (contribution/sales revenue) x 100

                Contribution
                = sales revenue per unit – variable cost per unit

Margin of safety
= actual sakes – break-even sales

Investment decisions

Payback period
= length of time it takes for the initial investment to be repaid from resulting cash inflows

Accounting rate of return
= (average annual profit / average investment) x 100

Average annual profit
= (total project revenue – depreciation) / lifetime of project in years

Depreciation
= initial cost – disposal value

Average investment
= (initial investment + disposal value) / 2

Present value
= future cash flow x (1 / discount factor)

Internal rate of return
= the discount rate at which future cash flows have a net present value of zero

Managing working capital

Working capital
= current assets – current liabilities

                Current assets
                = inventories + trade receivables + cash

                Current liabilities
                = trade payables + bank overdrafts

Operating cash cycle
= average inventories turnover period* + average settlement period for trade receivables* – average settlement period for trade payables*

Average inventory turnover period*
= (average inventories held / cost of sales) x 365

Average settlement period for trade receivables*
= (average trade receivables / credit sales revenue) x 365

Average settlement period for trade payables*
= (average trade payables / credit purchases) x 365

Lead time for orders (in weeks)
= annual demand for component / number of weeks in a year

* To nearest day