Formulas Flashcards
Breakeven ($)
FC / CM % per unit
- BE (units)
FC / CM($) per unit
ROI
net income / cost of investment
so anything that has “cost of investment” use ROI
Gross margin
(Rev - COGS) / rev
o Operating margin
operating income / revenue
o Net profit margin
net income / revenue
o ROA
net income / total assets
how efficient a company’s management is in generating profit from their total assets on their balance sheet.
ROE
net income / shareholders’ equity
gauge of a corporation’s profitability and how efficiently it generates those profits
what are the profitability ratios
ROE
ROA
gross margin
net income margin
operating margin
what are the turnover ratios
inventory turnover
AR turnover
AP turnover
Inventory turnover
COGS / average inventory
Days in inventory: 365 / turnover ratio
where is derived from EI = BI + purchases - COGS
Tells how many days it takes company to turnover inventory. lower the better. Lower carrying costs and obsolescence.
AR turnover
annual credit sales / average AR
Days in AR = 365 / turnover ratio
Days tells you how long it takes to receive payment from suppliers
AP turnover
AP / average AP
Days in AP = 365 / turnover ratio
How many days it takes to pay suppliers
liquidity ratios
current ratio
quick ratio
current ratio
CA / CL
shows whether ST liabilities can be covered by ST assets
want to be high to avoid liquidity issues
quick ratio
( CA - inventory ) / CL
Shows whether ST liabilities can be coverered by ST assets without having to sell inventory
solvency ratios
debt to assets
debt to equity
interest coverage
debt to assets
total debt (ST + LT) / total assets
The ratio is used to measure how leveraged the company is, as higher ratios indicate more debt is used as opposed to equity capital
measure of the company’s assets that are financed by debt rather than equity
50% of the company’s assets are financed using debt (with the other half being financed through equity).
greater than 1 means company is insolvent.
debt to equity
total liabilities / total equity
Ratio used to evaluate the degree to which a company is financing it’s operations with debt rather than its own resources how much debt company has taken on relative to net assets and liabilities.
* A higher ratio suggests more risk
payback
initial investment / cash flows per year
based on after-tax cash flow
o Cash flow
NPV (PV present value it when its multi year analysis as need to get value today)
NPV=(%,CF,+yr0)
can be pre or after-tax cash flows
triggers for cash flow
- Given high and low projections
- 5 year least term
- Says it will increase per year
Include initial renovations costs in Year 0.
