Chapter 1 - 4 Formulas

Question 1

The Accounting Equation

Answer 1

Assets = Liabilities + Stockholders’ Equity

Question 2

Income Statement

Answer 2

Net Income = Revenues - Expenses

Question 3

Rate of Return

Answer 3

Amount of Return ($) / Amount Invested ($)

Question 4

Interest

The income or expense from investing or borrowing money

Answer 4

Principal ($) x Rate (%) x Time (years)

Principal- amount invested or borrowed
Rate- Interest rate per year
Time- The length of time the funds are invested or borrowed

Question 5

ROI ( Return on investment)

Answer 5

Net Income / Avg total assets

ALSO

Operating income / avg operating assets

Question 6

DuPont Model (Expansion of ROI)

Answer 6

ROI = (Net Income / Sales) x (Sales / Avg total assets)

ROI = Margin x Turnover
where
Margin = Net income/ sales
Turnover= Sales/ Avg total assets

Question 7

Return on equity (ROE)

Answer 7

Net income/ Avg stockholders’ equity

Question 8

Working Capital

Answer 8

current assets - current liabilities

Question 9

Current Ratio

Answer 9

current assets / current liabilities

Question 10

Acid-Test Ratio

Answer 10

Cash (including temporary cash investments) + accounts receivable (all divided by) / current liabilities

Question 11

Assets

Answer 11

Liabilities + Paid in capital

OR

Liabilities + SE + Revenues - Expenses

OR

Liabilities + paid in capital + retained earnings (beginning of period) + revenues (during the period) - expenses (during the period)