Consulting Math Flashcards

Contribution Margin

Price - Variable Costs

Tells us how much each dollar of revenue is available to cover Fixed Costs AND THEN contribute to profit once Fixed Costs are covered

Breakeven Quantity

(Fixed Costs) ÷ (Contribution Margin) ==> (Fixed Costs) ÷ (Price - Variable Costs)

Tells us the number of units needed to be sold to cover fixed costs (including investment costs)

Breakeven Price

(Fixed Costs) ÷ (Quantity) + Variable Costs

Tells us the price needed to sell X number of units in order to cover costs

Breakeven Period

(Breakeven Quantity) ÷ (Units Sold Per Period)

Tells us the amount of time it takes to reach the breakeven quantity

Return on Investment (ROI)

(Gain from Investment - Cost of Investment) ÷ (Cost of Investment)

Tells us the efficiency of the investment. Includes both fixed and variable costs. In other words, the numerator is total profit

Payback Period

(Initial Investment) ÷ (Incremental Profit) OR (Initial Investment) ÷ (Annual Cash Flow)

Tells the amount of time it takes to recover an initial investment

Present Value

(Cash Flow) ÷ (1+r)^(# of time period)

How much certain cash flow is worth today given a discount rate of r

Net Present Value

[(Cash Flow 1) ÷ (1+r)] + [(Cash Flow 2) ÷ (1+r)²] + [(Cash Flow 3) ÷ (1+r)³] + … + [(Cash Flow t) ÷ (1+r)^t] - Investment Costs

How much a certain cash flow is worth today given a discount rate

Perpetuity Calculation

(Annual Cash Flow) ÷ (r-g)

How much an annual cash flow is worth between time period 0 to infinity if there is a discount rate r and a growth rate g if the growth rate is g%. If you need to find the NPV of something between years 0 —> 30 with the same profit each year

Market Capitalization

(Total # of Shares) * (Price of 1 Share)

The Rule of 72

Calculate the growth rate of an investment will require to double in a specific number of years

Ex: If an investment needs to double in 5 years:

• 72/5 = 14.4% growth rate needed

CAGR

Indicates the average annual growth per years in a given period of time

Revenue Growth

Rate change = 1 + (rate Quantity) + rate (price) + (rate Q * rate P)

Apply this to revenue: Revenue*(rate change)

Compound Interest

A(1 + r/n)^nt

Where r is the interest rate and n is the # of compounding periods annually.

Gross Margin / Gross Profit

Revenue - COGS

How much money the company makes before SG&A, marketing, etc

Operating Margin or Operating Profit or Operating Income

Gross Margin - Operating Expenses (SG&A, R&D, Depreciation & Amortization)

Gross Margin %

Gross Margin ÷ Total Revenue

Operating Margin %

Operating Income ÷ Total Revenue

Return on Assets

Net Income ÷ Total Assets

How profitable a company is relative to assets and how effective management is on using the assets to generate revenues

Return on Equity

Net Income ÷ Total Shareholders’ Equity

How much money a company has provided relative to the money invested by shareholders