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ARA > FORMULAS > Flashcards

FORMULAS Flashcards

1
Q

Accounting Equation

A

A = L + E

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2
Q

Expanded Accounting Equation

A

Assets = Liabilities + Equity + (Income - Expenses)

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3
Q

Net Profit

A

All income - All expenses

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4
Q

Gross Profit

A

Income Generated from Selling Goods - Cost of Goods Sold

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5
Q

Carrying Value

A

Original Cost - Accumulated Depreciation

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6
Q

Net Assets

A

Total Assets - Total Liabilities

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7
Q

Total Equity

A

Total Assets - Total Liabilities

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8
Q

Net Assets

A

= Total Equity

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9
Q

EBIT

A

EBIT = Revenue – COGS – Operating Expenses

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10
Q

Return on Equity (ROE)

A

= EBIT / Total Equity

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11
Q

Weighted Average Cost of Capital (WACC)

A

= [Debt / (Debt + Equity)](Required Rate of Return % Debt) + [Equity/Debt + Equity](Required Rate of Return% Equity)

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12
Q

Comprehensive Income

A

= Profit + Other Comprehensive Income (OCI)

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13
Q
A
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14
Q

Contribution margin

A

total sales revenue - total variable costs

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15
Q

Contribution margin per unit

A

= Selling price per unit - variable cost per unit

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16
Q

Contribution margin ratio

A

= Contribution margin per unit/selling price per unit
*it the the portion of revenue that will go towards covering fixed costs

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17
Q

Break-even point of sales revenue

A

Level of revenue needed to be earned to meet fixed costs
= fixed costs / contribution margin ratio

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18
Q

Sales volume (units) to earn desired profit

A

The extra profit that the business needs to earn in order to satisfy shareholder returns
= (Fixed costs + desired profit)/(contribution margin per unit)

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19
Q

Sales mix ratio

A

= Volume of sales for each product / total volume

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20
Q

WACM and WACM per unit

A

WACM is calculated by multiplying the CMU for a product by the sales mix ratio and the WACM per unit is the addition of all these seperate WACM’s.

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21
Q

Break even volume of units

A

= fixed costs / WACM per unit

22
Q

Volume per item

A

= break even volume of units x sales mix ratio

23
Q

Margin of safety

A

Level that the expected sales could fall and still allow the business to cover its costs - measure of operational risk (percentage)
= (expected sales volume - break even volume) / expected volume of sales

24
Q

Absolute change

A

Amount in current period - amount in previous period

25
Q

Relative change

A

[(Amount in current period - amount in previous)/amount in previous] x100

26
Q

Horizontal analysis

A
  1. Absolute change year to year
  2. Relative change (%) year to year
27
Q

Vertical analysis

A

Compare to a base within the same statement
=next line item/base item
the base item is usually the larges line item

28
Q

Trend analysis

A

Index the base year (earliest year) as 100 and then then do next year/indexed year value x100 to get the next indexed value

29
Q

Ratio analysis

A

[One line item/other line item]*100

30
Q

Return on equity (ROE)

A

Tells how well the entity is generating profits relative to the amount of equity invested by shareholders.
[Profit available for distribution/average ordinary equity]*100

31
Q

Return on assets (ROA)

A

Ability of a business to use its assets to generate a return
= EBIT/Average Total Assets

32
Q

EBIT profit margin

A

The rate at which sales revenue is converted into profit
= EBIT/sales revenue*100

33
Q

Expense ratio

A

The extent to which sales revenue is consumed by one particular expense or one cost centre
= ()expense/sales revenue*100 - can be conducted for any expense occuring in the statement

34
Q

Gross profit margin

A

= gross profit/sales revenue*100

35
Q

Cash flow to sales ratio

A

The rate at which sales revenue generates operating cash flow
= Net operating cash flows/sales revenue

36
Q

Asset turnover

A

Indicates how well a business can generate sales revenue from assets
= Sales revenue/average total assets

37
Q

Inventory turnover/days inventory

A

Average number of days inventory is held
= average inventory/cost of sales *365

38
Q

Days sales outstanding

A

= Average trade receivables / sales revenue

39
Q

Days purchases outstanding

A

= average trade payables / (cost of sales + net increase in inventory)

40
Q

Current ratio or working capital ratio

A

number of times over current assets could meet current liabilities
= CA/CL

41
Q

Quick ration or acid test ratio test

A

Number of times quick assets could service CL
= (cash + receivables)/(CL - overdrafts)

42
Q

Cash flow ratio

A

The amount of cash flow available in a period to service CL
= Net operating cash flows / CL

43
Q

Debt ratio

A

The extent to which the entity has used debt to finance their investment in assets (60% is considered high)
= total liabilities/total assets

44
Q

Debt to equity ratio

A

= Debt ratio/equity ratio

45
Q

Equity ratio

A

= 100% - debt ratio

46
Q

Interest coverage ratio

A

=EBIT/finance costs
finance costs = interest expense - interest revenue

47
Q

Average interest rate

A

= finance costs x average interest bearing liabilites

48
Q

Debt coverage ratio

A

= Non-current liabilities/net operating cash flows
(cash flows generated from operations)

49
Q

Net tangible asset backing per share (NTAB)

A
50
Q

Earnings per share (EPS) / Diluted EPS

A

Profit avail to ordinary shareholder / WAVE no. of ordinary shares on issue **OR **

51
Q

Dividend payout ratio

A
52
Q

Price Earnings Ratio (P/E Ratio or PER)

A

ARA (13 decks)

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