Business Calculations

Expected Value of a Decision

Expected Value = (Pay-off of A × Probability of A) + (Pay-off of B × Probability of B)

Net Gain (Decision Tree)

Net Gain = Expected Value - Initial Cost of Decision

Return on Investment (ROI) (%)

ROI (%) = (Return on Investment (£) / Cost of the Investment (£)) × 100

Return on Capital Employed (ROCE) (%)

ROCE (%) = (Operating Profit / Capital Employed) × 100

Capital Employed

Capital Employed = Total Equity + Non-Current Liabilities

Current Ratio

Current Ratio = Current Assets / Current Liabilities

Gearing (%)

Gearing (%) = (Non-Current Liabilities / Capital Employed) × 100

Payables Days

Payables Days = (Payables / Cost of Sales) × 365

Receivables Days

Receivables Days = (Receivables / Sales Revenue) × 365

Inventory Turnover

Inventory Turnover = Cost of Goods Sold / Average Inventories Held

Average Rate of Return (ARR) (%)

ARR (%) = (Average Annual Profit / Initial Cost of Project) × 100

Payback Period

Payback Period = Initial Investment / Annual Net Cash Flow (for constant flows)

Net Present Value (NPV)

NPV = Sum of Discounted Cash Flows - Initial Outlay