Accounting Formulas Flashcards
What are total costs composed of?
Fixed + Variable Costs
Fixed costs remain constant regardless of output, while variable costs change with the level of production.
How do you calculate unit costs?
Total Cost / Output
This formula provides the cost incurred for producing a single unit of output.
What is the formula for revenue?
Price x Quantity sold
Revenue is the total income generated from sales before any costs are deducted.
How is contribution per unit calculated?
Price – Variable Costs
This represents the amount each unit contributes to covering fixed costs and generating profit.
What is the break-even point?
Fixed Costs / Contribution
The break-even point indicates the level of sales at which total revenue equals total costs.
What does margin of safety measure?
Actual Sales – Break Even Sales
It reflects the difference between actual sales and sales needed to break even.
What is the average rate of return?
Annual Average Profit / Cost of Investment x 100
This metric evaluates the profitability of an investment relative to its cost.
How is net cash flow determined?
Total Inflows – Total Outflows
This represents the net amount of cash being transferred in and out of a business.
What is gross profit calculated from?
Sales Revenue – Cost of Sales
Gross profit indicates the efficiency of production and sales activities.
What is operating profit?
Gross Profit – Expenses
Operating profit reflects the profit earned from core business operations, excluding other income and expenses.
How do you calculate profit before tax?
Operating Profit – Finance costs
This figure indicates the profit a company earns before tax obligations are deducted.
What is profit for the year (retained profit)?
Net Profit – Tax and Dividends
It represents the remaining profit after all expenses, taxes, and dividends have been paid.
What are net current assets?
Current Assets – Current Liabilities
This is a measure of a company’s short-term financial health and liquidity.
How is net assets calculated?
Total Assets (Current Assets + Non Current Assets) – Current Liabilities – Non-Current Liabilities
Net assets provide insight into a company’s overall financial position.
What is straight line depreciation?
Initial Cost – Residual Value / Life of Asset
This method allocates the cost of an asset evenly over its useful life.
What is the current ratio?
Current Assets / Current Liabilities
This ratio measures a company’s ability to pay short-term obligations.
What does the acid test measure?
Current Assets – Inventory (Stock) / Current Liabilities
The acid test assesses a company’s immediate liquidity without relying on inventory sales.
How is gearing defined?
Non Current Liabilities / Capital Employed x 100
Gearing indicates the proportion of a company’s capital that is financed through debt.
What is the debt to equity ratio?
Debt / Equity x 100
This ratio compares a company’s total liabilities to its shareholder equity.
How is interest cover calculated?
Operating Profit / Interest Payable (Finance costs)
This ratio measures a company’s ability to meet its interest payments from operating profits.
What is asset turnover?
Revenue / Non-Current Assets
This ratio assesses how efficiently a company uses its non-current assets to generate sales.
What is stock turnover?
Cost of Stock / Average Stock
This metric evaluates how efficiently inventory is managed and sold.
What are debtor days?
Trade Receivables / Revenue x 365
Debtor days indicate the average time taken to collect payment from customers.
What does creditor days measure?
Trade Payables / Cost of sales x 365
This metric shows the average time a company takes to pay its suppliers.
What is the gross profit margin?
Gross Profit / Sales Revenue x 100
This percentage indicates the portion of revenue that exceeds the cost of goods sold.
How is net profit margin calculated?
Net profit / Sales Revenue x 100
This ratio reflects the percentage of revenue that remains as profit after all expenses are deducted.
What does ROCE stand for?
Return on Capital Employed
ROCE measures a company’s profitability and the efficiency with which its capital is employed.
How is ROCE calculated?
Operating Profit / Capital Employed x 100
This formula provides insight into how well a company is generating profits from its capital.
What is return on equity?
Profit for the year / Shareholders Equity
This ratio measures the profitability of a company in relation to shareholders’ equity.
How do you calculate dividend per share?
Total Dividends Paid / Number of shares issued
This figure indicates the amount of dividend that each share receives.
What is dividend yield?
Dividend per share / Market price of share x 100
Dividend yield provides a measure of the income generated from an investment relative to its market price.
How is earnings per share calculated?
Profit for the year / Number of shares issued
This metric indicates how much profit is attributed to each share of stock.
What does the price earnings ratio represent?
Market price of share / Earnings per share
This ratio helps investors assess the relative value of a company’s shares.
