Formulas Flashcards
(11 cards)
What is the price elasticity of demand formula?
% change in quantity demanded / % change in price
What is the formula for capital employed?
Total assets - current liabilities
What is the formula for return on capital employed?
- Operating profit / capital employed
- Satisfactory figure is 20% or over.
What is the formula for working capital?
Current assets - current liabilities
What is the formula for current ratio?
- Current assets / current liabilities
- Ideal ratio is 1.5 - 2
- Less than 1.5 might indicate struggles with meeting short-term debts (liquidity crisis)
- Over 2 would suggest that business is holding onto cash in an unproductive and unprofitable way - could be reinvested.
What is the formula for quick ratio?
- Current assets - inventory / current liabilities
- Ideal figure is 1
- Less than 1 might indicate struggles with meeting short-term debts (liquidity crisis)
- Over 1 would suggest that business is holding onto cash in an unproductive and unprofitable way - could be reinvested.
What is the formula for trade receivables collection period?
Trade receivables collection period = (Trade receivables / revenue) x 365
What is the formula for inventory holding period?
Inventory holding period = (Inventory / Cost of sales) x 365
What is the formula for trade payables payment period?
Trade payables payment period = (Trade payables / Cost of Sales) x 365
What is the formula for interest cover?
Interest cover = Profit before interest payable / Interest payable (if covenant breached then becomes going concern)
What is the gearing ratio formula?
- Long-term liabilities / capital employed x 100
- Over 50% could make it hard to raise new finance as riskier investment
- Less than 50% could suggest overly cautious management. Investment in company are safe but dull.
