Formulas Flashcards
(16 cards)
What is Return on Investment (ROI)?
ROI = Annual profit controllable by manager (controllable profit) / Capital employed in the division (CE)
ROI is also known as ROCE or RONA.
What is Residual Income (RI)?
RI = Controllable profit - (Capital employed × target % return)
RI is an absolute measure and will also increase with the age of assets.
What is the formula for the Break-even Point?
Total contribution = Total fixed costs
Break-even units = Total fixed costs / Contribution per unit.
How is Total Contribution calculated?
Total contribution = Units sold x Contribution per unit
What is Sensitivity Analysis?
Sensitivity analysis estimates how the total value of cash flow is affected by changes in variables.
What is the formula for Gross Profit Margin?
Gross profit × 100% / Revenue
Used to assess profitability before taking overheads into account.
What does Operating Margin measure?
Operating profit × 100% / Revenue
Assesses profitability after taking overheads into account.
What is the formula for Return on Capital Employed?
Operating profit × 100% / (Equity + debt)
Measures how effectively resources are used to generate profit.
What is the Current Ratio formula?
Current assets / Current liabilities
Assesses ability to pay current liabilities from current assets.
What is the Quick Ratio formula?
Current assets excluding inventory / Current liabilities
Assesses ability to pay current liabilities from reasonably liquid assets.
What does the Gearing Ratio assess?
Debt / (Debt + Equity)
Assesses reliance on external finance.
What is the formula for Interest Cover?
Profit before interest payable / Interest payable
Assesses ability to pay interest charges.
What is the formula for Trade Receivables Collection Period?
Trade receivables × 365 / Revenue
Assesses the average time taken to collect cash from credit customers.
What is the formula for Inventory Holding Period?
Inventory × 365 / Cost of sales
Assesses the average length of time inventory is held.
What is the formula for Trade Payables Payment Period?
Trade payables × 365 / Purchases
Assesses the average time taken to pay suppliers.
