Math Flashcards
Profit Formula (3)
Rev – Costs
(Price)(Q) – (VC)(Q) – FC
(Marginal Profit)(Q) – FC
Marginal Cost Definition & Formula
Definition: Incremental change in profit resulting from selling one more unit
Formula: Price - VC
When someone asks “Gross Profit Margin”, always clarify if they mean…
Gross Profit, Operating Profit, Net Profit, or Contribution Margin
Gross Profit Margin Formula & Value
[(Revenue – COGS) / (Revenue)] x 100%
How efficiently a company produces or sources its products. Excludes operating expenses like marketing, salaries, and rent. It’s used to assess: Manufacturing efficiency, Supplier costs, and Pricing strategy
Operating Profit (EBIT) Margin Formula & Value
OperatingProfitMargin = [Operating Income (aka EBIT) / Revenue]
It tells you core business profitability after operating costs (salaries, marketing, rent), but before interest and taxes
Net Profit Margin Formula & Value
Net Profit Margin = [(Net Income / Revenue)] x 100%
It tells you the “bottom line” profit after all expenses — operating costs, interest, taxes, one-time items, etc.
It’s used to assess Overall profitability, Return to shareholders, What’s left after everything is paid
Contribution Margin Formula & Value
Contribution Margin = [(Revenue - VC)/Revenue] x 100%
It’s used to assess: Profitability per unit or product line, Which products are worth scaling, Sensitivity to volume changes, Unit-level analysis, break-even, scaling
Market Sizing Formula
(total pop.) x (penetration rate) x (frequency) x (price)
Growth Rate Formula or % change
[(Fx - Ct) / Ct.] x 100%
Breakeven Profit Formula
(MP)(Total Q) – Total FC = Profit
Breakeven Quantity Formula
Quantity = (FC + Profit) / MP
ROI Formula
Profit / ii
[(Sales Pr. - Purchase Pr.) / (Purchase Pr.)] x 100%
It’s the same as the growth formula! [(New - Old)/Old] x 100%
Present Value Formula
(FCF / Discount Rate) - ii
It’s safe to assume standard discount rate 10% if not provided.
If perpetuity, growth rate should not exceed country GDP (<5%)
Payback Period Formula
[ii (- salvage value of item being replaced)] / incremental profit
Parentheses are present because salvage value isn’t always relevant
Expected Value Formula
(value) x (prob. of occurrence)
Probability is generally provided and is an industry standard.
Asset Utilization Formula
Capacity Utilized / Capacity Available
K Trick for Thousand, Million, Billion
Thousand = K
Million = K x K
Billion = K x K x K
Whenever currency is mentioned, always confirm if it’s in…
USD! One of the biggest mistakes made by candidates is not confirming this.
Market Sizing: When a product or service is used by individual customers in the US, assume X number of customers.
Use 320Mn, assuming 80 years of
life expectancy; therefore 4 customer segments (0-20, 20-40, 40-60, 60-80)
Market Sizing: When a product is shared by household, assume X ppl per household and Y total indivduals so Z households.
3 ppl per HH
300Mn total individuals
100Mn households (but in reality 128)
1/11
0.09
0.09
1/11
1/12
0.083
0.083
1/12
1/13
0.08
0.08
1/13
1/14
0.07
0.07
1/14
1/15
0.067 or 0.07
0.067 or 0.07
1/15
0.0625
1/16
1/16
0.0625
1/17
0.06
0.06
1/17
1/18
0.055 or 0.06
0.055 or 0.06
1/18
1/19
0.053
1/20
0.05
0.05
1/20
0.053
1/19
1/10
0.1
0.1
1/10
Multiplying by 1.5, 0.15, 15
Net Interest Income Formula
NII = NIM x Loan Volume
where NII = Interest Income - Interest Expense so…
(Interest Income - Interest Expense) = (NIM x Loan Volume)
When multiplying by 25, use this fraction
Multiply by 100/4
32 x 25,000
32/4 = 8
800,000
1/8
0.125
When multiplying by 5, use this fraction
Multiple by (10/2)
3 x 35
105
8*15
120
5*15
75
When multiplying by 75, use this fraction
300/4
When dividing by 5…
Divide by 10 then multiply by 2
or
Multiply by 2 then divide by 10
GDP per capita in the US
60K
GDP total in the US
20T
China Pop.
1.4B
India Pop.
1.3B
Brazil Pop.
200M
Russia Pop.
150M
Mexico Pop
125M
EU Pop.
500M
Japan Pop
125M
Germany Pop.
80M
France Pop
65M
UK Pop
65M
Italy Pop
60M
Canada Pop.
35M
Australia Pop
25M
3/5 in percent
60%
2/5 in percent
40%
4/5 in percent
80%
20% in fraction
1/5
60% in fraction
3/5
80% in fraction
4/5
7 x 4
28
7 x 8
56
7 x 9
63
12 x 3
36
12 x 4
48
12 x 5
60
12 x 6
72
12 x 7
84
12 x 8
96
12 x 9
108
13 x 3
39
13 x 4
52
13 x 5
65
13 x 6
78
13 x 7
91
13 x 8
104
15 x 3
45
15 x 4
60
15 x 5
75
15 x 6
90
15 x 7
105
When looking at targets that will increase profit, one easy way to know if they’ll help is…
Look at profit margin if available! If compared to your own decreasing profit, the target profit margins are the same then the target companies would not be providing incremental profit.
AP Recommendation
- Acquisition
- Improve internal UVP of current product lines, maybe create new ones
- Boost other popular products in meantime!
Wallet Share definition
Also known as “share of wallet,” this refers to the percentage of a customer’s total spending in a category that goes to a specific provider. So if someone uses five different financial institutions but spends 60% of their money with JPMC, JPMC has a 60% wallet share for that customer.
