A2 finance formulas

Question 1

current ratio

Answer 1

current assets/current liabilities

Question 2

acid-test ratio

Answer 2

liquid assets/current liabilities

Question 3

liquid assets

Answer 3

current assets-inventories

Question 4

gross profit margin ratio

Answer 4

[gross profit/revenue]x100

Question 5

gross profit

Answer 5

revenue-cost of sales

Question 6

operating profit margin ratio

Answer 6

[operating profit/revenue]x100

Question 7

operating profit

Answer 7

gross profit-overhead expenses

Question 8

return on capital employed

Answer 8

[operating profit/capital employed]x100

Question 9

capital employed

Answer 9

non-current liabilities+shareholder’s equity

Question 10

shareholder’s equity

Answer 10

issued shares+reserves

Question 12

rate of inventory turnover

Answer 12

cost of sales/avg inventory

Question 13

avg inventory

Answer 13

inventory@start+end/2

Question 14

trade receivables turnover

Answer 14

[trade receivables/credit sales]x365

Question 15

trade payables turnover

Answer 15

[trade payables/credit purchases]x365

Question 16

gearing ratio

Answer 16

[non-current liabilities/capital employed]x100

Question 17

dividend yield ratio

Answer 17

[dividend per share/market share price]x100

Question 18

dividend per share

Answer 18

total annual dividends/total no.of issued shares

Question 19

dividend cover ratio

Answer 19

profit for the year/annual dividends

Question 20

price earnings ratio

Answer 20

market share price/earnings per share

Question 21

earnings per share

Answer 21

profit for the year/number of shares issued

Question 22

accounting rate of return

Answer 22

[avg annual profit/avg investment]x100

Question 23

avg investment

Answer 23

[initial capital cost+residual capital value]/2

Question 24

npv

Answer 24

total discounted cashflows-capital cost