Formulas to Learn

Question 1

ROCE - Profitability Ratios

Answer 1

(PBIT)/Capital Employed

Question 2

ROCE - Profitability Ratios

Answer 2

PBIT X Revenue
————– —————-
Revenue Capital Employed

Question 3

Debt Ratios - Gearing

Answer 3

Debt or Debt
——– ————————
Equity Debt + Equity

Question 4

Debt Ratios - Interest Coverage

Answer 4

PBIT /
Interest

Question 5

Liquidity Ratios - Current Ratio

Answer 5

Current Assets : Current Liabilities

Question 6

Liquidity Ratios - Acid Test Ratio

Answer 6

Current assets less inventory: Current Liabilities

Question 7

Shareholder Invester Ratios - Dividend Yield

Answer 7

Dividend per share
———————————- x 100
Market price per share

Question 8

Shareholder Invester Ratios - Earnings per share

Answer 8

profits distributable to ordinary shareholders / No. of ordinary shares issued

Question 9

Shareholder Invester Ratios - Price earnings (P/E) ratio

Answer 9

Market price per share ÷
EPS

Question 10

Accounts Receivable days

Answer 10

Receivables/credit sales X 365 days

Question 11

Inventory Days

Answer 11

a) Finished Goods = Finished Goods/Cost of sales X 365 days

b) WIP = Average WIP / Cost of sales X 365 days

c) Raw material = Avg raw material inventory / annual raw mat purchases X 365 days

Question 12

Accounts Payable Period

Answer 12

Payables / Credit Purchases (or cost of sales if purchases is unavailable) X 365 days

Question 13

IRR

Answer 13

a + NPVa
——————–(b-a)
NPVa - NPVb

Question 14

Equivalent Annual Cost

Answer 14

PV of cost over one replacement cycle /
Annuity factor for the no. years in the cycle

Question 15

Cost of Debt

Answer 15

Kd = i (1-T)
———-
P0

Question 16

Cost of Preference shares

Answer 16

Kpref = Preference Dividend d
——————————- = —-
Market Value (ex div) P0

Question 17

Profitability Index

Answer 17

PV of cash flows (or NPV of project) /
Capital Investment