Accounting Formulas

 Accounting Formulas


1. Gross Profit = Sales - Cost of Goods Sold


2. Gross Profit Margin = (Gross Profit / Sales) x 100


3. Operating Profit = Gross Profit - Operating Expenses


4. Operating Profit Margin = (Operating Profit / Sales) x 100


5. Net Profit = Operating Profit - Taxes and Interest


6. Net Profit Margin = (Net Profit / Sales) x 100


7. Return on Investment (ROI) = (Gain / Cost) x 100


8. Return on Equity (ROE) = (Net Profit / Shareholder Equity) x 100


9. Asset Turnover = Sales / Total Assets


10. Inventory Turnover = Cost of Goods Sold / Average Inventory


11. Days Sales Outstanding (DSO) = Accounts Receivable / Sales x Number of Days


12. Days Inventory Outstanding (DIO) = Inventory / Cost of Goods Sold x Number of Days


13. Current Ratio = Current Assets / Current Liabilities


14. Quick Ratio = (Current Assets - Inventory) / Current Liabilities


15. Debt-to-Equity Ratio = Total Debt / Shareholder Equity


16. Earnings Per Share (EPS) = Net Profit / Number of Shares


17. Price-Earnings Ratio (P/E Ratio) = Stock Price / EPS


18. Break-Even Point (BEP) = Fixed Costs / (Selling Price - Variable Costs)


19. Margin of Safety = (Sales - BEP) / Sales


20. Cost of Goods Sold (COGS) = Direct Materials + Direct Labor + Overheads


21. Operating Leverage = (Operating Profit / Sales) x (Sales / Fixed Costs)


22. Financial Leverage = (Net Profit / Operating Profit) x (Operating Profit / Sales)


23. Return on Assets (ROA) = Net Profit / Total Assets


24. Return on Capital Employed (ROCE) = EBIT / (Total Assets - Current Liabilities)


25. Residual Income (RI) = Net Profit - (Total Assets x Cost of Capital)


26. Economic Value Added (EVA) = Net Profit - (Total Assets x Cost of Capital)


27. Cash Conversion Cycle = DIO + DSO - Days Payable Outstanding (DPO)


28. Asset Utilization = Sales / Total Assets


29. Profitability Index (PI) = Present Value of Future Cash Flows / Initial Investment


30. Accounting Rate of Return (ARR) = Average Annual Profit / Average Investment


31. Payback Period = Initial Investment / Annual Cash Inflows


32. Discounted Payback Period = Initial Investment / Discounted Cash Inflows


33. Net Present Value (NPV) = Present Value of Future Cash Flows - Initial Investment


34. Internal Rate of Return (IRR) = Discount Rate that sets NPV to zero


35. Cost of Capital = Weighted Average of Debt and Equity Costs


36. Weighted Average Cost of Capital (WACC) = (Cost of Debt x Debt) + (Cost of Equity x Equity)


37. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) = Net Profit + Interest + Taxes + Depreciation + Amortization


38. Interest Coverage Ratio = EBIT / Interest Expenses


39. Times Interest Earned (TIE) = EBIT / Interest Expenses


40. Cash Flow Margin = (Operating Cash Flow / Sales) x 100


41. Cash Flow Return on Investment (CFROI) = Operating Cash Flow / Total Assets


42. Free Cash Flow (FCF) = Operating Cash Flow - Capital Expenditures.

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