Accounting Formulas

Accounting Rate of Return

Net Income / Initial Investment

Accounts Payable Turnover

 Cost of Goods Sold / Average Accounts Payable

Accounts receivable turnover

credit sales / average gross accounts receivables

Accounts Receivable Turnover Ratio

Net Credit Sales/Avg Net Accounts Receivable

 Accounts receivable collection period

Investment in Accounts Receivable / Daily Sales

Accumulated Depreciation

Cost- Salvage Value/Years

Activity Ratios (list 10)

1.Accounts receivable turnover 
2.Accounts payable turnover 
3.Inventory turnover 
4.Days sales in receivables 
5.Days sales in inventory 
6.Days purchases in payables 
7.Operating cycle 
8.Cash cycle 
9.Total asset turnover 
10.Fixed asset turnover

Asset Turnover

Total Revenue / Average Total Assets

Average Collection Period

365 / Receivables Turnover

Average costs per sale

Total Cost/Sales

Average Days to Sell Inventory

365 / Inventory Turnover

Average Issuance Price

A balance of common shares account/acquisition

Balance Sheet

Assets = Liabilities + Stockholders’ Equity

Basic Earnings Per Share (EPS) 

Net Income – Preferred Dividends/Weighted-Average Common Shares Outstanding

Book Value Per Common Share 

Stockholder’s Equity Applicable to Common Shares/Number of Common Shares Outstanding

Book Value Per Preferred Share

Stockholder’s Equity Applicable to Preferred Shares/Number of Preferred Shares Outstanding

Book value per share 

(total stockholders’ equity – preferred equity) / 
number of common shares outstanding

Break – even point

Break Even = Fixed Cost/Contribution Margin

Breakeven point in dollars 

fixed costs / (unit contribution margin/selling price)

Breakeven Sales

Fixed Costs / Contribution Margin Ratio

Breakeven Units

Fixed Costs / CMPU

Capital Acquisitions Ratio

Cash Flow from Operating Activities / Cash Paid for Property, Plant, and Equipment

Cash coverage ratio

EBIT + depreciation / interest

Cash cycle

Operating cycle – days purchases in payables

Cash ratio

 (cash + marketable securities) / current liabilities

Cash to expense ratio

Cash-To-Expense Ratio = (Investment in Cash + Investment in Marketable Securities) / (Annual Operating Expense/365 days)

Cost of Goods Manufactured

BWIP
DM used:
Beg RM
(+) Purchases
(=) Available
(-) End RM
(=) DM used in production
(+) DL
(+) MOH
(=) Total Manufacturing Costs
(+) BWIP
(-) EWIP
(=) COGM

Cost of Goods Sold

Beg FG Inventory
(+) COGM
(-) End FG Inventory
(=) COGS

Computing Interest

Principal of the Note x Annual Interest Rate x Time Expressed In Fraction of Year = Interest

Contribution Margin

Sales Revenue – Variable Costs

Contribution Margin Ratio

Contribution Margin / Sales Revenue

Conversion Costs

DL + MOH

Cost/volume/profit analysis (list 4)

1.Breakeven point in units 
2.Breakeven point in dollars 
3.Margin of safety
4.Margin of safety ratio

Current Ratio

Current Assets / Current Liabilities

Days In Inventory

365/Inventory Turnover

Days purchases in payables 

average payables / (purchase / 365)

Days’ sales in inventory

365 days / inventory turnover or

 Investment in Inventory / Cost of Daily Sales

Days sales in receivables 

365 days/receivables turnovers or

average accounts receivable / (credit sales / 365)

Days’ Sales Uncollected

Accounts Receivable/Net Sales x 365

Debt coverage ratio

Earnings BEfore Interest and Taxes for a Given Period /(Interest Expense for a Given Period + Principal Payments on Debt for a Given Period)

Debt to Asset Ratio

Total Liabilities/Total Assets

Debt-to-Equity

Total Liabilities/ Total Equity

Degree of financial leverage

% change in net income / % change in EBIT,
or 
= EBIT / EBT

Degree of operating leverage 

= % change in EBIT / % change in sales 
or 
= contribution margin / EBIT

Depletion Cost

Unit Depletion Rate X Number of Units Extracted

Depletion Expense

Depletion Per Unit x Units Extracted and Sold In Period

Depletion Per Unit

Cost – Salvage Value/ Total Units of Capacity

Depreciation

(Initial Investment + Salvage Value) / Useful life

Depreciation Cost

Cost – Salvage Value

Diluted EPS

(net income – preferred dividends) / diluted weighted average common shares outstanding 

Direct Labor Efficiency Variance

Standard Rate * (Standard Hours – Actual Hours)

Direct Labor Rate Variance

Actual Hours x (Standard Rate – Actual Rate)

Direct Materials Price Variance

Actual Quantity x (Standard Price – Actual Price)

Direct Materials Quantity Variance

Standard Price x (Standard Quantity – Actual Quantity)

Dividend payout ratio

cash dividends / net income

Dividend yield

Annual dividends per share / market price per share

Double Declining Depreciation Expense Method

( 2/useful life) X Book Value Start

Earnings Per Share

Net Income – Preferred Dividends/ Average number of common shares outstanding 

Earnings yield 

EPS / current market price per common share

EBITDA margin 

EBITDA / sales

EBITDA ratio

enterprise value / EBITDA

price elasticity of demand

E = [change in quantity / (average of quantities)] / [change in price / (average of prices)]

enterprise value

total market value of the stock + book value of all liabilities – cash

equity multiplier =

total assets / total equity

Financial leverage ratio =

= assets / equity

Fixed asset turnover =

= sales / average net plant, property and equipment

Fixed charge coverage =

= earnings before fixed charges and taxes / fixed charges fixed charges include interest, required principal repayment, and leases
fixed charges include
include interest, required principal repayment, and leases
Interest coverage (times interest earned)
= EBIT / interest expense k(3) Cash flow to fixed charges = (cash from operations + fixed charges + tax payments) / 
fixed charges. Note: cash from operations is after-tax.

fixed-asset turnover

Fixed-Asset Turnover = Annual Sales / Investment in Property, Plant, and Equipment

Good Will

Purchase Cost – Fair Value of Identifiable Assets

Gross profit margin percentage

 gross profit / sales

Gross Profit Percentage

(Net Sales Revenue – COGS) / Net Sales Revenue

Income Statement

Revenues – Expenses 

Inventory Turnover

COGS / Average Inventory

invest coverage ratio

Invest Coverage Ratio = Earnings BEfore Interest and Taxes for a Given Period / Interest Expense for a Given Period

Investment Turnover

Sales Revenue / Average Invested Assets

Leverage

Avg Totals Assets/ Avg shareholders equity

Leverage ratios (list 8)

1.Degree of financial leverage 
2.Financial leverage ratio 
3.Total debt to total capital ratio 
4.Debt to equity ratio 
5.Long-term debt to equity 
6.Debt to total assets ratio 
7.Fixed charge coverage 
8. Interest coverage (times interest earned)

Liquidity ratios (list 5)

Net working capital 
Current ratio 
Cash ratio 
Cash flow ratio 
Net working capital ratio

Long-term debt to equity ratio =

= (total debt – current liabilities) / equity

Margin of safety 

= planned sales – breakeven sales

Margin of safety ratio =

= margin of safety / planned sales

Market Ratios (list 10)

1.Market-to-book ratio 
2.Price earnings ratio 
3.Price to EBITDA ratio 
4.Book value per share 
5.Basic EPS 
6.Diluted EPS 
7.Earnings yield 
8.Dividend yield 
9.Dividend payout ratio 
10.Shareholder return

Market-to-book ratio =

= current stock price / book value per share

Measuring Value of A company

 = Number Of Shares Issued X Share Price at Date

Minimum Acceptable Profit

Hurdle Rate * Average Invested Assets

Net Book Value

= Acquisition Cost – Accumulated Depreciation

Net Cash Flow

Net Income + Depreciation

Net Present Value

(Annual cash flows * PV of $1) – Initial Investment

Net Profit Margin

Net Income / Net Sales (Operating Revenues)

Net profit margin x total asset turnover x equity multiplier (DuPont model) 

return on common equity
or
=(net income / sales) x (sales / average total assets) x
(average total assets) / average equity

Net working capital ratio 

net working capital / total assets

Operating profit margin percentage 

operating income / sales

P / E Ratio

Market Price Per Share /Earnings per share

Partial Income Statement

Sales
less: COGS
(=) Gross Margin
less: Operating Expenses
(=) Net Operating Income

Payback Period

Initial Investment / Annual Cash Flow

Payout Ratio/ Cash Dividends Declares/ Free Cash Flow

= Net Cash From Operating Activities – 
Capital Expenditures – Cash Dividends

PE ratio 

market price per share of common stock/earnings per share

Performance measures (list 2)

ROI
RI

Price Earnings Ratio

market price per share / EPS

Price to EBITDA ratio 

market price per share / EBITDA per share

Price-sales ratio 

price per share / sales per share

Prime Costs

DM + DL

Profit Margin

net income / sales

Profitability Analysis Ratios (list 7)

1.ROA 
2.ROE
3.Net profit margin x total asset turnover x equity multiplier (DuPont model)
4.Gross profit margin percentage 
5.Operating profit margin percentage 
6.Net profit margin percentage 
7.Sustainable growth rate

Profitability Index

PV of Future Cash Flows / Initial Investment

Profitability Ratios -(List 6)

(1) Gross profit margin percentage 
(2) Operating profit margin percentage 
(3) Net profit margin percentage 
(4) EBITDA margin 
(5)ROA 
(6) ROE

Quality of Income Ratio

Cash Flow from Operating Activities / Net Income

Quick Ratio (Acid-Test Ratio)

(cash + marketable securities + accounts receivable) /
current liabilities

Rate of Return on Assets

Net Income / Average Total Assets

Residual Income

Income of business unit – (Assets of business unit x required rate of return) 
Note: “Income” means operating income unless otherwise noted

Return on Assets (ROA)

= Net profit margin x total asset turnover
or
= (net income / sales) x (sales / average total assets) 
or
= net income / average total assets

Return on equity (ROE)

= Profit Margin X Asset turnover X Leverage
= Current Ratio
=ROA x financial leverage
or
= (net income / average total assets) x (average total assets / average equity )
or
= net income / average equity

ROI (Division)

Net Operating Income / Average Invested Assets

ROI (Multiplication)

Profit Margin * Investment Turnover

ROI

Income of business unit / Assets of business unit

Shareholder return

(ending stock price – beginning stock price + annual dividends per share) / beginning stock price

Special Order Formula

Special Order Price
(-) Variable Manufacturing Costs
(-) Variable Selling and Administrative
(-) Additional Fixed Costs
(=) Net Extra Income per unit

Statement of Cash Flows

+/- Cash Flows from Operating Activities
+/- Cash Flows from Investing Activities
+/- Cash Flows from Financing Activities
= Net Change in Cash
+/- Cash Flows from Operating Activities
+/- Cash Flows from Investing Activities
+/- Cash Flows from Financing Activities
= Net Change in Cash

Statement of Retained Earnings

Retained Earnings (beginning) + Net Income – Dividends

Straight Line Depreciation Expense Method

Depreciation Cost / Useful Life

Straight-Line Depreciation

Cost – Salvage Value/ Useful Life in Periods

Sustainable growth rate

= (1- dividend payout ratio) x ROE

Target Operating Income Sales (TIS)

(FC + Target Operating Income) / CMR

Target Operating Income Units (TIU)

 

(FC + Target Operating Income) / CMPU

The required rate of return for equity

Re = Rf + Risk Premium

The required rate of return for debt

Rd = Rf + Risk Premium

Times Interest Earned Ratio

EBIT / interest or
(Net Income + Interest Expense + Income Tax Expense) / (Interest Expense)

Total asset turnover 

sales / average total assets

Total debt ratio 

total assets – total equity / total assets

Total debt to total capital ratio 

(current liabilities + long term liabilities) / (total debt + total equity)

Total Manufacturing Costs

DM + DL + MOH

Transfer Price

Variable Costs + Opportunity Cost

Unit Depletion Rate

= (Total Cost – Salvage Value )/units in resource

Units Of Activity Depreciation Expense Method

= (Depreciation Cost / Total Units Of activity) 
X
Units of Activity used in year

Working Capital

= Current Assets – Current Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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