Accounting Formulas and Ratios

January Exam Revision

ROCE

PBIT/equity + l/t loans x 100%

Asset Turnover

revenue/equity l/t loans

Net Profit Margin

PBIT/revenue x 100%

Gross Profit

gross profit/revenue x 100%

Operating Expenses

operating expenses/revenue x 100%

Current ratio

current assets/current liabilities

Liquid/Quick Ratio

current assets - inventories/current liabilities

Inventory holding period

closing inventory/cost of sales x 365 days

Trade receivables collection period

closing trade receivables/credit sales x 365 days

Trade payables payment period

closing trade payables/credit purchase days x 365 days

Cash-to-Cash Cycle

inventory days + receivable days - payable days

Gearing (1)

lt debt/lt debt + equity

Gearing (2)

lt debt/equity x 100%

Gearing (3)

net debt/equity x 100%

Interest cover

PBIT/finance costs

Return on Equity (ROE)

profit attributable to equity shareholders/equity x 100%

Earnings per share (EPS)

profit attributable to equity shareholders/no. of equity shares

Price/Earnings Ratio (PE)

market price per share/earnings per share

Dividend per share

total equity dividends/no. of equity dividends

(Equity) dividend cover

profit after tax + preference dividends/total equity dividends

Dividend yield

dividend per share/market price per share x 100%

Reducing balance method

annual depreciation = rate of depreciation x net book value at start of the year

Straight Line Method

annual depreciation = cost less estimated residual value/expected useful life

Assets

equity + liabilities

Contribution per unit

selling price - variable cost

Break even point (units)

fixed costs/contribution per unit

Contribution Margin Ratio

contribution/sales

Margin of Safety

actual sales - break even sales

Overhead Absorption Rate

total overheads/activity level

Activity based costing (cost driver)

cost pool/cost driver volume

Total cost

fixed costs + (variable costs per unit x units)

Flexed budget value

budgeted variable cost per unit x actual units + budgeted units

Sales volume variance

actual qty - budget qty x standard profit per unit

Sales price variance

actual price - budget price x actual qty

Material price variance

actual price - standard price x actual qty

Material usage variance

actual qty - standard qty x standard price

Labour rate variance

actual rate - standard rate x actual hours

Labour efficiency variance

actual hours - standard hours allowed x standard rate

Payback Period (PBP)

years before payback + unrecovered amount/cash flow of next year

Accounting rate of return (ARR)

average annual profit/initial investment x 100

Net Present Value

cash flow(t)/(1 + r)t ) - initial investment