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Financial courses > Formula Fun House > Flashcards

Formula Fun House Flashcards

1
Q

profit margin =

A

profit margin =

net income / net sales

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2
Q

future value =

A

future value =

present value x (1+r)^n

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3
Q

present value =

A

present value =

future value / (1+r)^n

r = rate

n = number of periods

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4
Q

net present value =

A

net present value =

future value / (1+r)^n - initial investment

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5
Q

present value of annuity =

A

present value of annuity =

1-(1+r)^-n / r

r = rate

n = number of periods

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6
Q

discount factor for perpetuity =

A

discount factor for perpetuity =

1/r

r = rate

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7
Q

present value of perpetuity =

A

present value of perpetuity =

cash flow / r

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8
Q

return on investment =

A

return on investment =

net income / invested assets

or

(current value of investment - cost investment) / cost of investment

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9
Q

internal rate of return =

A

internal rate of return =

capital investment / net annual cash flows (gives IRR factor)

IRR factor -> find from the table the corresponding rate

The internal rate of return is a metric used in financial analysis to estimate the profitability of potential investments. The internal rate of return is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis. IRR calculations rely on the same formula as NPV does.

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10
Q

annual rate of return =

A

annual rate of return =

expected annual net income / average investment

average investment = (original investment + value at the end of useful life) / 2

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11
Q

profitability index =

A

profitability index =

present value of net cash flows / initial investment

The profitability index (PI) is a measure of a project’s or investment’s attractiveness. The PI is calculated by dividing the present value of future expected cash flows by the initial investment amount in the project.

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12
Q

cash payback period =

A

cash payback period =

cost of capital investment / net annual cash flow

Ignore salvage value, if it occurs after the payback period.

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13
Q

working capital =

A

working capital =

current assets - current liabilities

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14
Q

cash conversion cycle =

A

cash conversion cycle =

inventory days + trade recivable days - trade payable days

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15
Q

gearing ratio =

A

gearing ratio =

long term debt / equity

or

long term debt / (debt + equity)

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16
Q

dividend yield =

A

dividend yield =

dividend per share / ex-dividend market price per share

The dividend yield is the cash return a shareholder is currently expecting on the shares of a company. Shareholders look for both dividend yield and capital growth. The dividend yield is therefore an important aspect of a share’s performance.

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17
Q

earnings per share =

A

earnings per share =

profit distributable to ordinary sharehodlers / weighed-average number of ordinary shares

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18
Q

price-earnings ratio =

A

price-earnings ratio =

market price per share / earnings per share

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19
Q

return on capital employed =

A

return on capital employed =

estimated average accounting profits / estimated average investment

Using accounting profits (so after depreciation) not cash. Before tax.

You may sometimes see “inital investment” on the bottom line, examiner wants “average investment” = (initial investment + disposal value)/2

or

EBIT (operating income) / total assets - current liabilities

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20
Q

current ratio =

A

current ratio =

current assets / current liabilities

21
Q

acid test ratio =

A

acid test ratio =

(cash + short term investments + accounts receivable) / current liabilities

22
Q

accounts receivables turnover =

A

accounts receivables turnover =

net credit sales / average net accounts receivable

Measures the number of times, on average, the company collects receivables during the period.

A variant of the accounts receivable turnover ratio is to convert it to an average collection period in terms of days: 365 / accounts receivables turnover

23
Q

cost of goods sold =

A

cost of goods sold =

beginning inventory + cost of goods purchased - ending inventory (merchandiser)

beginning finished goods inventory + cost of goods manufactured - ending finished goods inventory (manufacturer)

24
Q

inventory turnover =

A

inventory turnover =

COGS / average inventory

25
Q

asset turnover =

A

asset turnover =

net sales / average total assets

26
Q

return on assets =

A

return on assets =

net income / average total assets

27
Q

return on common stockholders equity =

A

return on common stockholders equity =

net income - preference dividends / average common stockholders equity

28
Q

payout ratio =

A

payout ratio =

cash dividends / net income

The payout ratio is a financial metric showing the proportion of earnings a company pays its shareholders in the form of dividends, expressed as a percentage of the company’s total earnings.

29
Q

debt to assets ratio =

A

debt to assets ratio =

debt / assets

30
Q

times interest earned =

A

times interest earned =

income before income taxes and interest expense / interest expense

31
Q

unit contribution margin =

A

unit contribution margin =

unit selling price - unit variable costs

It represents the incremental money generated for each product/unit sold after deducting the variable portion of the firm’s costs.

32
Q

contribution margin ratio =

A

contribution margin ratio =

unit contribution margin / unit selling price

33
Q

break-even point in units =

A

break-even point in units =

fixed costs / contribution margin per unit

contribution margin per unit = unit selling price - unit variable costs

34
Q

break-even point in EUR =

A

break-even point in EUR =

fixed costs / contribution margin ratio

35
Q

required sales in units (contribution margin technique) =

A

required sales in units (contribution margin technique) =

(fixed costs + target net income) / contribution margin per unit

36
Q

required sales in EUR (contribution margin technique) =

A

required sales in EUR (contribution margin technique) =

(fixed costs + target net income) / contribution margin ratio

37
Q

target cost =

A

target cost =

market price - desired profit

Cost that provides the desired profit when the market determines a product’s price.

38
Q

In cost-plus pricing:

target selling price =

A

In cost-plus pricing:

target selling price =

cost + (markup x cost)

39
Q

In cost-plus pricing:

markup (profit) =

A

In cost-plus pricing:

markup (profit) =

selling price - cost

40
Q

margin of safety in EUR =

A

margin of safety in EUR =

actual (expected) sales - break-even sales

41
Q

margin of safety ratio =

A

margin of safety ratio =

margin of safety in EUR / actual (expected) sales

42
Q

total cost of work in progress =

A

total cost of work in progress =

beginning work process inventory + total manufacturing costs

43
Q

time and material pricing =

A

time and material pricing =

labour charges + material charges + material loading charges

Labour charges expressed as a rate per hour of labor. Includes: a) direct labor cost (includes fringe benefits); b) selling, administrative, and similar overhead costs; c) allowance for desired profit (ROI) per hour

Material loading charge added to invoice price of materials. Covers the costs of purchasing, receiving, handling, storing + desired profit margin on materials. Expressed as a percentage of estimated costs of parts and materials for the year:

44
Q

negotiated transfer price in case of NO capacity =

A

negotiated transfer price in case of NO capacity =

variable cost + opportunity cost

45
Q

negotiated transfer price in case of EXCESS capacity =

A

negotiated transfer price in case of EXCESS capacity =

variable cost = minimum transfer price

In the minimum transfer price formula, variable cost is the variable cost of units sold internally. May differ - higher or lower - for units sold internally versus those sold externally. The minimum transfer pricing formula can still be used – just use the internal variable costs.

46
Q

absorbption-cost pricing =

A

absorbption-cost pricing =

manufacturing costs per unit + (markup percentage x manufacturing cost per unit) = target selling price

  1. Compute the unit manufacturing cost.
  2. Compute the markup percentage – must cover the desired ROI as well as selling/ administrative expenses.
  3. Set the target selling price
47
Q

variable cost pricing =

A

variable cost pricing =

variable cost per unit + (markup percentage x variable cost per unit) = target selling price

48
Q

high-low method =

A

high-low method =

Step 1: determine variable costs per unit using the following formula:

change in total costs / high - low activity level = variable cost per unit

Step 2: determine fix costs. Substract the total variable cost at either the high or the low activity level from the total cost at that activity level:

high (or low) activity level - total variable cost = total fixed costs

High-Low Method uses the total costs incurred at the high and the low levels of activity to classify mixed costs into fixed and variable components. The difference in costs between the high and low levels represents variable costs, since only variable-cost element can change as activity levels change.

Financial courses (9 decks)

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