Formulae Flashcards
Value for money - 3 E’s
Efficient - Outputs per input
Effectiveness - Measure of outputs
Economy - effective and efficient at lowest cost
ROCE
PBIT / Capital
If difference profit or capital during year use an average (starting plus ending / 2)
Appraisal technique based on accounting profits
Dealing with tax in NPV
Tax is charges on operating cashflows and writing down allowances allowed for an expense against profit instead of depreciation
Discounted cashflows techniques
Annuity
Perpetuity
Present value of Annuity = Annuity x PV from table
Perpetuity = Cashflows/r
r=interest rate
IRR
on excel
if given two NPVs
on excel =irr(cashflows) needs to include the inital negative cashflow of cost
low NPV% + (low NPV/(NPV low-high) to the power of (high%-low%)
This is the break even point of cost of capital
Real or money cost of capital
(I + i) = (l + r) (l +h)
I = nominal inflation R = real cost of capital H = general inflation
Probability analysis
Expected values: probability x outcome
Sensitivity analysis
(NPV/PV of variable) * 100
Equivalent annual cost
PV of cost/Annuity factor
Asset investment decision
Profitability index
NPV/Investment needed
When capital rationing mutually exclusive projects consider if:
Dividable
Indivisible
Divisible: calculate PI, rank in order of highest first, allocate funds in order
Indivisible: trial and error to maximise NPV
Cash operating cycle
Receivables days + Inventories days - payables days
This is the average time between purchase of inventory and receiving cash from the sale of inventory
Receivables days
Receivables amount $
(Receivables/sales)*365
The average number of days taken to get cash from debtors
(Receivables days/365)*sales
Payables days
Payables amount $
(Payables/purchases or cost of sales) *365
The average number of days to pay creditors
(Payables days/365) *purchases or cost of sales
Inventory days
Inventories amount $
(Inventories/cost of sales)*365
How many days it takes to sell stock
(Inventory days/365)*cost of sales
Total cost of stock
Cost of holding + ordering + purchasing
(Co* (D/Q))+(Ch* (Q/2))+(P*D)
Co = Cost of ordering D = Demand per year Q = EOQ P = price
If working out a discount offered by supplier change P and Q to information given in question.
Economic Order Quantity - EOQ
Square root(2CoD/Ch)
Co = Cost of ordering D = Annual demand Ch = Cost of holdings 1 unit for 1 year
This is to minimise cost of ordering and holding by ordering a specific number of units per time.
If you have buffer stock add buffer stock x cost of holding
Annual cost of discount
(1+(Discount/amount left to pay))^n-1
N = number of periods = 12/number of months earlier
Can be done as days or weeks as well 365 or 52/X
Baumol model
EOQ for cash
Square root(2CoD/Ch)
Co = Transaction costs D = Demand Ch = cost of holdings (opportunity cost, what interest % you would have gotten)
Foreign exchange risk
Transactional = risk of exchange rates changing between transaction date and payment date
Economic
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