FORMULAS

Question 1

Accounting Equation

Answer 1

A = L + E

Question 2

Expanded Accounting Equation

Answer 2

Assets = Liabilities + Equity + (Income - Expenses)

Question 3

Net Profit

Answer 3

All income - All expenses

Question 4

Gross Profit

Answer 4

Income Generated from Selling Goods - Cost of Goods Sold

Question 5

Carrying Value

Answer 5

Original Cost - Accumulated Depreciation

Question 6

Net Assets

Answer 6

Total Assets - Total Liabilities

Question 7

Total Equity

Answer 7

Total Assets - Total Liabilities

Question 8

Net Assets

Answer 8

= Total Equity

Question 9

EBIT

Answer 9

EBIT = Revenue – COGS – Operating Expenses

Question 10

Return on Equity (ROE)

Answer 10

= EBIT / Total Equity

Question 11

Weighted Average Cost of Capital (WACC)

Answer 11

= [Debt / (Debt + Equity)](Required Rate of Return % Debt) + [Equity/Debt + Equity](Required Rate of Return% Equity)

Question 12

Comprehensive Income

Answer 12

= Profit + Other Comprehensive Income (OCI)

Question 14

Contribution margin

Answer 14

total sales revenue - total variable costs

Question 15

Contribution margin per unit

Answer 15

= Selling price per unit - variable cost per unit

Question 16

Contribution margin ratio

Answer 16

= Contribution margin per unit/selling price per unit
*it the the portion of revenue that will go towards covering fixed costs

Question 17

Break-even point of sales revenue

Answer 17

Level of revenue needed to be earned to meet fixed costs
= fixed costs / contribution margin ratio

Question 18

Sales volume (units) to earn desired profit

Answer 18

The extra profit that the business needs to earn in order to satisfy shareholder returns
= (Fixed costs + desired profit)/(contribution margin per unit)

Question 19

Sales mix ratio

Answer 19

= Volume of sales for each product / total volume

Question 20

WACM and WACM per unit

Answer 20

WACM is calculated by multiplying the CMU for a product by the sales mix ratio and the WACM per unit is the addition of all these seperate WACM’s.

Question 21

Break even volume of units

Answer 21

= fixed costs / WACM per unit

Question 22

Volume per item

Answer 22

= break even volume of units x sales mix ratio

Question 23

Margin of safety

Answer 23

Level that the expected sales could fall and still allow the business to cover its costs - measure of operational risk (percentage)
= (expected sales volume - break even volume) / expected volume of sales

Question 24

Absolute change

Answer 24

Amount in current period - amount in previous period

Question 25

Relative change

Answer 25

[(Amount in current period - amount in previous)/amount in previous] x100

Question 26

Horizontal analysis

Answer 26

1. Absolute change year to year 2. Relative change (%) year to year

Question 27

Vertical analysis

Answer 27

Compare to a base within the same statement =next line item/base item *the base item is usually the larges line item*

Question 28

Trend analysis

Answer 28

Index the base year (earliest year) as 100 and then then do next year/indexed year value x100 to get the next indexed value

Question 29

Ratio analysis

Answer 29

[One line item/other line item]*100

Question 30

Return on equity (ROE)

Answer 30

Tells how well the entity is generating profits relative to the amount of equity invested by shareholders. [Profit available for distribution/average ordinary equity]*100

Question 31

Return on assets (ROA)

Answer 31

Ability of a business to use its assets to generate a return = EBIT/Average Total Assets

Question 32

EBIT profit margin

Answer 32

The rate at which sales revenue is converted into profit = EBIT/sales revenue*100

Question 33

Expense ratio

Answer 33

The extent to which sales revenue is consumed by one particular expense or one cost centre = ()expense/sales revenue*100 - can be conducted for any expense occuring in the statement

Question 34

Gross profit margin

Answer 34

= gross profit/sales revenue*100

Question 35

Cash flow to sales ratio

Answer 35

The rate at which sales revenue generates operating cash flow = Net operating cash flows/sales revenue

Question 36

Asset turnover

Answer 36

Indicates how well a business can generate sales revenue from assets = Sales revenue/average total assets

Question 37

Inventory turnover/days inventory

Answer 37

Average number of days inventory is held = average inventory/cost of sales *365

Question 38

Days sales outstanding

Answer 38

= Average trade receivables / sales revenue

Question 39

Days purchases outstanding

Answer 39

= average trade payables / (cost of sales + net increase in inventory)

Question 40

Current ratio or working capital ratio

Answer 40

number of times over current assets could meet current liabilities = CA/CL

Question 41

Quick ration or acid test ratio test

Answer 41

Number of times quick assets could service CL = (cash + receivables)/(CL - overdrafts)

Question 42

Cash flow ratio

Answer 42

The amount of cash flow available in a period to service CL = Net operating cash flows / CL

Question 43

Debt ratio

Answer 43

The extent to which the entity has used debt to finance their investment in assets (60% is considered high) = total liabilities/total assets

Question 44

Debt to equity ratio

Answer 44

= Debt ratio/equity ratio

Question 45

Equity ratio

Answer 45

= 100% - debt ratio

Question 46

Interest coverage ratio

Answer 46

=EBIT/finance costs *finance costs = interest expense - interest revenue*

Question 47

Average interest rate

Answer 47

= finance costs x average interest bearing liabilites

Question 48

Debt coverage ratio

Answer 48

= Non-current liabilities/net operating cash flows (cash flows generated from operations)

Question 49

Net tangible asset backing per share (NTAB)

Answer 49

Question 50

Earnings per share (EPS) / Diluted EPS

Answer 50

Profit avail to ordinary shareholder / WAVE no. of ordinary shares on issue **OR **

Question 51

Dividend payout ratio

Answer 51

Question 52

Price Earnings Ratio (P/E Ratio or PER)

Answer 52