Business Studies iInances Formulae

Business Studies Finances Formulae -> ratios, financial management etc

Accounting Equation

Assets = Liabilities + Owners Equity

Cost Of Goods Sold

Opening inventory + Purchases - Closing inventory

Gross profit

Revenue - Cost of Goods Sold

Net profit

Gross profit - Expenses

Balance sheet

Summarises assets, liabilities, and equity at a given time

Income statement

Summaises income earned and expenses incurred over a period of time

Cash flow statement

Records the movement of cash receipts and payments over a period of time

Cash flow statement formula

Beginning cash + change in cash = Final cash

Current ratio

Current assets / Current liabilities, aim is 2:1

Debt to equity ratio

Liabilities / Equity, aim is 1:1.5

Gross profit ratio

Gross profit / Sales, aim is as high as possible

Net profit ratio

Net profit / Sales, aim is at least 10%

Return on equity ratio

Net profit / total equity, aim is at least 10%

Expense ratio

Expenses / Sales, aim is as low as possible

Accounts receivable turnover ratio

Sales / Accounts Receivable, aim is around 30 days

Normalised earnings

Removing one-off or unusual items from the balance sheet

Capitalising expenses

Adding a capital expense as an asset, rather than an expense

Valuing assets

Estimating the market value of assets/liabilities

Timing issues

Adjustments to the timing of activities

Debt repayments

Inability to disclose specific info about debt repayments

Notes to financial statements

Any additional info left out of the main report