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Formula File (Chapter - 1 & 2)

The document outlines key financial formulas and metrics used in accounting and finance, including calculations for gross profit, net income, cash flow, and various ratios such as current ratio and return on equity. It also explains concepts like free cash flow, economic value added (EVA), and the cash conversion cycle. These formulas are essential for analyzing a company's financial performance and health.

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Shafayat Hossain
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
0 views

Formula File (Chapter - 1 & 2)

The document outlines key financial formulas and metrics used in accounting and finance, including calculations for gross profit, net income, cash flow, and various ratios such as current ratio and return on equity. It also explains concepts like free cash flow, economic value added (EVA), and the cash conversion cycle. These formulas are essential for analyzing a company's financial performance and health.

Uploaded by

Shafayat Hossain
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Gross Profit = Sales Revenue – COGS

EBIT or NOI = Gross Profit – Operating Expense

EBIT = Sales – Cost – Depreciation


= EBT + Interest Charges
Net investment in fixed asset = (Ending Net Fixed Asset – Beginning Net Fixed Asset) + Depreciation
Net Income = (Sales – Operating Cost – Interest Expense) (1 – Tax Rate)
Net Income = Dividend + Additional Retained Earning

Net Income = EBT (1- Tax Rate)

Net cash flow = Net income + Depreciation and amortization

Net working capital = NWC = Current assets - Current Liabilities


Net operating working capital = NOWC = (Current assets required
for operations) – (non-interest-bearing current liabilities)

Operating cash flow= NOI (1 - Tax rate) + Depreciation and


amortization expense
= Net operating profit after taxes + Depreciation and amortization
expense
Free Cash Flow (FCF) = Operating cash flow - Investments
= Operating cash flow (change in fixed assets + change in NOWC)

EVA = NOI (1 - Tax rate) – ((Invested capital) (After tax cost of funds))

Current ratio = Current assets/Current liabilities

Quick, or acid test, ratio = (Current assets -Inventory)/Current liabilities

Inventory turnover = Cost of goods sold/Inventory

Days sales outstanding (DSO) = (Accounts Receivable)/(Annual sales/360)

Fixed assets turnover = Sales/ Net Fixed Assets

Total assets turnover = Sales/Total assets

Debt ratio = Debt to total assets = Total liabilities/Total assets

Times interest earned (TIE) = EBIT/Interest charges

Fixed charge coverage = (EBIT + Lease payments)/ (Interest charges + Lease payments + (Sinking fund
payments/ (1 -Tax rate))

Net profit margin = Net profit/Sales [Here, Net profit = Net Income]
Return on total assets (ROA) = Net income/Total assets

= (Net income/Sales) x (Sales/Total assets)

= NPM x TAT

Return on equity (ROE) = Net income available to common stockholders /Common equity

= (Net income/Total assets) x (Total assets/Common equity)

= NPM x TAT x EM

= ROA x Equity Multiplier

Price/Earnings (P/E) = Market price per share/Earnings per share

Market/Book (M/B) = Market price per share/Book value per share

Earing Per Share = (Net Income – Preferred Dividend)/ (No of share outstanding)

Debt Equity Ratio = Debt ratio/Equity to asset ratio

Equity to asset ratio = Equity/Asset

= 1 – Total Debt Ratio

Debt Ratio = Liabilities/ Asset

Equity Multiplier = Total Asset/Total Equity


= 1 + Debt-Equity Ratio
= 1 / Equity to Asset Ratio
Dividend payout ratio = Dividend per share (DPS)/ Earning per share (EPS)
Internal Growth Rate (IGR) = (ROA x R) / (1- (ROA x R))
Retention, R = (1- Dividend payout ratio)
Sustainable Growth Rate = (ROE x R) / 1- (ROE x R)
= ROE X (1 – Dividend Payout Ratio)

Inventory Conversion Cycle= (Inventory) / (COGS/360)

= 360/ Inventory Turnover

Receivable collection period (DSO) = (Receivable / (Annual credit Sales/360)

= 360/ Receivable Turnover

Payables deferral period (DPO) = (Accounts payable) / (COGS/360)

= 360 / Payable Turnover

Cash Conversion cycle = Inventory conversion period + Receivable collection period - Payables deferral
period

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