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Key Accounting and Finance Formulas

This document provides key formulas for accounting and finance concepts including the balance sheet equation, current and quick ratios, leverage ratio, income statement equation, gross profit margin, EBIT margin, net profit margin, return on equity, DuPont formula, market capitalization, price earnings ratio, dividend yield, holding period return, bond valuation, measures of risk and return like mean, standard deviation, expected return, CAPM, time value of money formulas like future value, present value, and effective annual rate.

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ZOn Yêu
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155 views3 pages

Key Accounting and Finance Formulas

This document provides key formulas for accounting and finance concepts including the balance sheet equation, current and quick ratios, leverage ratio, income statement equation, gross profit margin, EBIT margin, net profit margin, return on equity, DuPont formula, market capitalization, price earnings ratio, dividend yield, holding period return, bond valuation, measures of risk and return like mean, standard deviation, expected return, CAPM, time value of money formulas like future value, present value, and effective annual rate.

Uploaded by

ZOn Yêu
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

ACCOUNTING AND FINANCE FOR BUSINESS KEY FORMULAS

STATEMENT OF
FINANCIAL
POSITION
Balance Sheet
𝐴𝑠𝑠𝑒𝑡𝑠 = 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝐸𝑞𝑢𝑖𝑡𝑦
Equation

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
Current Ratio 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠 − 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠


Quick Ratio 𝑄𝑢𝑖𝑐𝑘 𝑅𝑎𝑡𝑖𝑜 =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑠𝑠𝑒𝑡𝑠
Leverage Ratio 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐸𝑞𝑢𝑖𝑡𝑦

Net Debt to 𝐷𝑒𝑏𝑡 − 𝐶𝑎𝑠ℎ & 𝐸𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡𝑠


𝑁𝑒𝑡 𝐷𝑒𝑏𝑡 𝑡𝑜 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑎𝑡𝑖𝑜 =
Equity Ratio 𝐸𝑞𝑢𝑖𝑡𝑦
STATEMENT OF
FINANCIAL
PERFORMANCE
Income
Statement 𝑃𝑟𝑜𝑓𝑖𝑡 = 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
Equation

Income 𝐼𝑛𝑐𝑜𝑚𝑒 = 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 + 𝐺𝑎𝑖𝑛𝑠

Gross Profit 𝑅𝑒𝑣𝑒𝑛𝑢𝑒 − 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑


Margin 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 =
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥


EBIT Margin 𝐸𝐵𝐼𝑇 𝑀𝑎𝑟𝑔𝑖𝑛 =
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

Net Profit 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡


Margin 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑀𝑎𝑟𝑔𝑖𝑛 =
𝑅𝑒𝑣𝑒𝑛𝑢𝑒

Return on 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡


𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 =
Equity 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐸𝑞𝑢𝑖𝑡𝑦

𝑅𝑒𝑣𝑒𝑛𝑢𝑒
Efficiency Ratio 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 𝑅𝑎𝑡𝑖𝑜 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑠𝑠𝑒𝑡𝑠

DuPont Formula 𝑅𝑒𝑡𝑢𝑟𝑛 𝑜𝑛 𝐸𝑞𝑢𝑖𝑡𝑦 = 𝑃𝑟𝑜𝑓𝑖𝑡𝑎𝑏𝑖𝑙𝑖𝑡𝑦 × 𝐸𝑓𝑓𝑖𝑐𝑖𝑒𝑛𝑐𝑦 × 𝐿𝑒𝑣𝑒𝑟𝑎𝑔𝑒

EQUITY
FUNDING
Market
𝑀𝑘𝑡 𝐶𝑎𝑝 = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑆ℎ𝑎𝑟𝑒𝑠 × 𝐿𝑎𝑠𝑡 𝑃𝑟𝑖𝑐𝑒
Capitalisation
ACCOUNTING AND FINANCE FOR BUSINESS KEY FORMULAS

Price Earnings 𝐿𝑎𝑠𝑡 𝑃𝑟𝑖𝑐𝑒


𝑃𝐸𝑅 =
Ratio 𝐸𝑎𝑟𝑛𝑖𝑛𝑔𝑠 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒


Dividend Yield 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 𝑌𝑖𝑒𝑙𝑑 =
𝐿𝑎𝑠𝑡 𝑃𝑟𝑖𝑐𝑒

Holding Period 𝑃𝑒𝑟𝑖𝑜𝑑 𝐸𝑛𝑑 𝑃𝑟𝑖𝑐𝑒 + 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 − 𝑃𝑒𝑟𝑖𝑜𝑑 𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒


𝐻𝑃𝑅 =
Return 𝑃𝑒𝑟𝑖𝑜𝑑 𝐵𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 𝑃𝑟𝑖𝑐𝑒
DEBT FUNDING
𝑛 𝐶𝑜𝑢𝑝𝑜𝑛 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑠𝑡
2 𝐹𝑎𝑐𝑒 𝑉𝑎𝑙𝑢𝑒
Bond Valuation 𝑉𝑎𝑙𝑢𝑒 = ∑ ( 𝑛×𝑚 ) +
𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑅𝑎𝑡𝑒 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑅𝑎𝑡𝑒 𝑛×𝑚
𝑡=1 (1 + ) (1 + )
𝑚 𝑚
RISK AND
RETURN
∑𝑛𝑖=1 𝑉𝑎𝑙𝑢𝑒𝑖
Mean 𝑀𝑒𝑎𝑛 =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑉𝑎𝑙𝑢𝑒𝑠𝑖

Standard ∑𝑛 (𝑆𝑎𝑚𝑝𝑙𝑒 𝑉𝑎𝑙𝑢𝑒𝑖 − 𝑀𝑒𝑎𝑛 𝑉𝑎𝑙𝑢𝑒 )2


Deviation 𝑆𝐷 = √ 𝑖=1
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑉𝑎𝑙𝑢𝑒𝑠𝑖 𝑖𝑛 𝑠𝑎𝑚𝑝𝑙𝑒 − 1
Expected ∑𝑛𝑖=1 𝐻𝑃𝑅𝑖
Return 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑅𝑒𝑡𝑢𝑟𝑛 =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐻𝑃𝑅𝑖 𝑖𝑛 𝑠𝑎𝑚𝑝𝑙𝑒
(historical)
Expected 𝑛

Return 𝐸𝑥𝑝𝑒𝑐𝑡𝑒𝑑 𝑅𝑒𝑡𝑢𝑟𝑛 = ∑ 𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑅𝑒𝑡𝑢𝑟𝑛𝑖 × 𝑃𝑟𝑜𝑏𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑖


(probabilistic) 𝑖=1

Expected
𝐶𝐴𝑃𝑀 = 𝑅𝑖𝑠𝑘 𝐹𝑟𝑒𝑒 𝑅𝑎𝑡𝑒 + (𝐵𝑒𝑡𝑎 × 𝐸𝑞𝑢𝑖𝑡𝑦 𝑅𝑖𝑠𝑘 𝑃𝑟𝑒𝑚𝑖𝑢𝑚)
Return (CAPM)

𝐶𝑜𝑣𝑎𝑟𝑖𝑎𝑛𝑐𝑒𝑅,𝑀
Beta 𝐵𝑒𝑡𝑎 =
𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒𝑀
TIME VALUE OF
MONEY
Future Value
(simple 𝐹𝑉 = 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 + (𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 × 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 × 𝑃𝑒𝑟𝑖𝑜𝑑𝑠)
interest)
Future Value
(compound 𝐹𝑉 = 𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 × (1 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒)𝑃𝑒𝑟𝑖𝑜𝑑𝑠
interest)
Future Value 𝑛

(Cash Flow 𝐹𝑉 = ∑ 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤𝑡 × (1 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒)𝑛−𝑡


Series) 𝑡=1
Present Value 𝐹𝑢𝑡𝑢𝑟𝑒 𝑉𝑎𝑙𝑢𝑒
(compound 𝑃𝑉 =
(1 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒)𝑃𝑒𝑟𝑖𝑜𝑑𝑠
interest)
Present Value 𝑛
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤𝑡
(Cash Flow 𝑃𝑉 = ∑
(1 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒)𝑡
Series) 𝑡=1
ACCOUNTING AND FINANCE FOR BUSINESS KEY FORMULAS

Effective Annual 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 𝑃𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝐴𝑛𝑛𝑢𝑚


Rate 𝐸𝐴𝑅 = (1 + ) −1
𝑃𝑒𝑟𝑖𝑜𝑑𝑠 𝑝𝑒𝑟 𝐴𝑛𝑛𝑢𝑚
INVESTMENT
DECISION
𝐹𝑟𝑒𝑒 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤
Free Cash Flow = 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 + 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 − 𝐼𝑛𝑐𝑟𝑒𝑎𝑠𝑒 𝑖𝑛 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
+ 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒 − 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑥𝑝𝑒𝑛𝑑𝑖𝑡𝑢𝑟𝑒
𝐷𝑒𝑏𝑡
Weighted 𝑊𝐴𝐶𝐶 = (𝐶𝑜𝑠𝑡𝐷𝑒𝑏𝑡 × (1 − 𝑇𝑎𝑥 𝑅𝑎𝑡𝑒) × )
𝐷𝑒𝑏𝑡 + 𝐸𝑞𝑢𝑖𝑡𝑦
Average Cost of 𝐸𝑞𝑢𝑖𝑡𝑦
Capital + (𝐶𝑜𝑠𝑡𝐸𝑞𝑢𝑖𝑡𝑦 × )
𝐷𝑒𝑏𝑡 + 𝐸𝑞𝑢𝑖𝑡𝑦
𝑛
Net Present 𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤𝑡
𝑁𝑃𝑉 = ∑ ( ) − 𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
Value (1 + 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑅𝑎𝑡𝑒)𝑡
𝑡=1
𝐶𝑎𝑠ℎ 𝐹𝑙𝑜𝑤𝑡
Profitability ∑𝑛𝑡=1 ( )
(1 + 𝐷𝑖𝑠𝑐𝑜𝑢𝑛𝑡 𝑅𝑎𝑡𝑒)𝑡
Index 𝑃𝐼 =
𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
MANAGEMENT
DECISION
Contribution
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 = 𝐼𝑛𝑐𝑜𝑚𝑒 − 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡𝑠
Margin

Net Income 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 = (𝑉𝑜𝑙𝑢𝑚𝑒 × 𝑈𝑛𝑖𝑡 𝑃𝑟𝑖𝑐𝑒) − (𝑉𝑜𝑙𝑢𝑚𝑒 × 𝑈𝑛𝑖𝑡 𝑉𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝐶𝑜𝑠𝑡)
(Pre Tax) − 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠

Break Even 𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡𝑠


𝐵𝑟𝑒𝑎𝑘 𝐸𝑣𝑒𝑛 𝑉𝑜𝑙𝑢𝑚𝑒 =
Sales Volume 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑀𝑎𝑟𝑔𝑖𝑛 𝑝𝑒𝑟 𝑈𝑛𝑖𝑡

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