week 4 equations Flashcards
Return on capital employed
= operating profit / (total equity + non-current liabilities) x 100
operating profit percentage
= operating profit / revenue x 100
gross profit percentage
= gross profit / revenue x 100
current ratio
current assets / current liabilities
x:1
acid test ratio
= (current assets – inventories) / current liabilities
x:1
inventory holding period (X DAYS)
= inventories / cost of sales x 365
trade receivables collection period (X days)
= trade receivables / revenue x 365
trade payables payment period (X days)
= trade payables / cost of sales x 365
asset turnover (£X)
= revenue / total assets
interest cover (X times)
= operating profit / finance costs
gearing %
= non-current liabilities / (total equity + non-current liabilities) x 100
accounting rate of return
= average annual accounting profit / initial cost of the investment to earn that profit x 100
money/nominal rate
1 + Money rate = (1 + real rate) x (1 + inflation rate)
internal rate of return
IRR = ra + NPVa /(NPVa – NPVb). x (rb -ra)
internal rate of return meaning
ra = lower discount rate chosen
rb = higher discount rate chosen
NPVa = NPV at lower discount rate
NPVb = NPV at higher discount rate
capital rationing
Profitability index (PI) = NPV / cos
working capital cycle (X days)
= inventory holding period + trade receivables collection period – trade payables payment period.
economic order quantity (EOQ)
= √ 2CoD / Ch
economic order quantity meanings
Where:
C0 = the costs of ordering a consignment of inventory
CH = the cost of holding one unit of inventory for one year
D = the annual demand
