Finance and Accounts Formulas

Question 1

Formula for gross profit margin(GPM)

Answer 1

Question 2

Formula for profit margin

Answer 2

Question 3

Formula for return on capital employed(ROCE)

Answer 3

Question 4

Formula for capital employed

Answer 4

Capital employed = Non-current liabilities + Equity

Question 5

Formula for equity

Answer 5

Equity = Retained earnings + Share capital

Question 6

Formula for working capital

Answer 6

Working capital = Current assets - Current liabilities

Question 7

Formula for current ratio

Answer 7

Current assets ÷ Current liabilities

Question 8

Formula for acid test(quick) ratio

Answer 8

Question 9

Formula for total equity

Answer 9

Total equity = Retained earnings + Share capital(for-profit only)

Question 10

Formula for straight-line method of depreciation

Answer 10

Question 11

Formula for units of production method of depreciation

Answer 11

Question 12

Formula for contribution per unit

Answer 12

Contribution per unit = Price per unit - Variable cost per unit

Question 13

Formula for margin of safety

Answer 13

Margin of safety = Current level of output - Break-even quantity

Question 14

Formula for break-even quantity

Answer 14

fixed costs ÷ contribution per unit

Question 15

Formula for profit (at a certain level of output)

Answer 15

(Output × contribution per unit) – fixed costs

Question 16

Formula for stock turnover ratio(number of times)

Answer 16

Cost of sales ÷ Average stock

Question 17

Formula for stock turnover ratio(number of days)

Answer 17

(Average stock ÷ Cost of sales) × 365

Question 18

Formula for average stock

Answer 18

(Opening stock + Closing stock) ÷ 2

Question 19

Formula for debtor days ratio

Answer 19

(Debtors ÷ Sales revenue) × 365

Question 20

Formula for creditor days ratio

Answer 20

(Creditors ÷ Cost of sales) × 365

Question 21

Formula for gearing ratio

Answer 21

Question 22

Formula for profit

Answer 22

Profit = Total revenue - Total costs

Question 23

Formula for net cashflow

Answer 23

Net cashflow = payments received - payments made

Question 24

Formula for working capital

Answer 24

Working capital = Current assets - Current liabilities

Question 25

Formula for closing balance

Answer 25

Closing balance = Opening balance + Net cash flow for the month

Question 26

Formula for payback period

Answer 26

Payback period = Initial Investment ÷ Net Cash flow per year *The first formula assumes that net cash flow is the same for all years

Question 27

Steps to find the payback period

Answer 27

-Calculate the net cash flow for each year -Calculate the cumulative net flow for each year -Identify the final year when the cumulative net flow is negative -Find the amount left to pay(by adding the net cashflows of previous years including the final year) -Calculate the payback period(using the year with the positive cumulative net flow with the net cash flow for that year)

Question 28

Formula for net cash flow

Answer 28

Net cash flow = Cash inflow - Cash outflow

Question 29

Formula for cumulative net flow

Answer 29

Cumulative net flow = Cumulative net flow in previous years + Net flow of current year

Question 30

Formula for average rate of return

Answer 30

Question 31

Formula for the present value of a future cash flow(for a single year)

Answer 31

Question 32

Formula for net present value

Answer 32

Question 33

Formula for net income

Answer 33

Total income - Total costs

Question 34

Formula for variance

Answer 34

Actual figures - Budgeted figures