A2 Business Formulas

Absenteeism (%)

(number of days of employee absence / total number of workdays) x 100

Accounting rate of return

(average annual profit / average investment) x 100

Acid test ratio

liquid assets / current liabilities

Annual depreciation

(original cost of asset - expected residual value) / expected useful life of asset (years)

Average inventory

(inventory at start of year + inventory at end of year) / 2

Average investment

(initial capital cost + residual capital value) / 2

Capital employed (%)

non-current liabilities + shareholders’ equity

Shareholders’ equity

issued shares + reserves

Cost of sales

(opening inventories + purchases) - closing inventories

Current ratio

current assets / current liabilities

Dividend cover ratio (x)

profit for the year / annual dividends

Dividend per share

total annual dividends / total number of issued shares

Dividend yield ratio (%)

(dividend per share / market share price) x 100

Earnings per share (EPS)

profit for the year / number of shares issued

Free float

EST (next activity) - duration - EST (this activity)

Gearing ratio (%)

(non-current liabilities / capital employed) x 100

Gross profit

revenue - cost of sales

Gross profit margin ratio (%)

(gross profit / revenue) x 100

Income elasticity of demand

% change in quantity demanded / % change in consumer incomes

Liquid assets

current assets - inventories

Market share (%)

(sales of the business in time period / total market sales in time period) x 100

Net book value

original cost - accumulated depreciation

Net realisable value

amount for which existing inventory can be sold - cost of selling it

Operating profit margin ratio (%)

(operating profit / revenue) x 100

Additional months to payback

(additional net cash flow needed / annual cash flow in a year) x 12

Price/earnings ratio

market share price / earnings per share

Price elasticity of demand

% change in quantity demanded / % change in price

Promotional elasticity of demand

% change in quantity demanded / % change in promotional spending

Rate of inventory turnover

cost of sales / average inventory

Reserves

shareholders’ equity - share capital

Return on capital employed ratio

(operating profit / capital employed) x 100

Total float

LFT - duration - EST

Total revenue

selling price x quantity sold

Trade payables turnover (days)

(trade payables / credit purchases) x 365

Trade receivables (days)

(trade receivables / credit sales) x 365

working capital (net current assets)

current assets - current liabilities