Monday, 1 June 2015

Accounting Equations
Subject
1. Assets = Liability + Share Capital
2. Assets = Liability + (Share Capital + Retained Profit)
3. Assets = Liability + {Share Capital +(Retained Profit at the beginning period +
Revenue - Expenses -Dividends)}
low or negative working capital indicate short-term

4. Working Capital = CA - CL financial difficulties

5. Opening retained profits + Net profit for the period - Distributions (Dividends
declared) = Closing retained profits
6. Perpetual Method: Beginning inventory cost + Inventory acquired during the period Cost of inventory sold = Ending inventory cost
7. Periodic Method: Beginning inventory + Purchases - Ending inventory = Inventory
Sold (COGS)
8. Total cost = Ending Inventory + COGS
9. Depreciable amount = Asset Cost - Residual value
10. Straight-line depreciation: Depreciation expenses = (Cost - Residual value)/ Useful
life
11. Reducing Balance Depreciation: Depreciation expenses = Carrying Amount *
Depreciation value
12. Units of Production Depreciation: Depreciation per unit = (Cost - Residual value)/
Assessing the
Estimated total # of units of prod over life
effectiveness of

Profitability Ratio
(ability to earn
13. Return
profits)

14. Return

asset
utilisation
on Assets (ROA) = Operating Profit After Tax/ Total assets
How much return the
ROE = ROA * Leverage Ratio
company is generating
on Equity (ROE) = Operating Profit After Tax/ Shareholders Equity on the shareholder's
investment
ROA: Profit Margin * Asset Turnover

15. Profit Margin = Operating Profit After Tax/ Sales Revenue

16. Gross Margin = Gross Profit/ Sales

Further indication
Revenue of product pricing
and product mix

Indication of: Pricing

Strategy and competition
intensity in the industry

17. Earning Per Share = (Net operating profit - Dividends on preferred shares)/ Weighted
average number of ordinary share outstanding
18. Assets Turnover = Sales/ Total Assets

Indication of operating efficiency

19. Inventory Turnover = COGS/Average Inventory

Days in inventory: 365/Inventory
Activity
(turnover) Ratios
[efficiency of
operation]1

Efficiency of inventory management

Monday, 1 June 2015

20. Debits Turnover = Credit Sales/ Average Accounts Receivable
Days in Debtor= 365/Debtors turnovers

Efficiency of the company

to collect the amount due
from debtors

21. ROA = Profit Margin * Asset Turnover

enough CA to pay off CL?
to working capital=CA-CL

Liquidity Ratios
(ability pay
short term
debts)

22. Current Ratio = CA/CL Relating

23. Quick Ratio = (Cash + Accounts Receivable + Short-term investment)/ Current

CA without inventory as it needs to
Liabilities
be sold
24. Leverage Ratio = Total assets/ Shareholders Equity

Financial
Structure
Ratios
(ability
to
continue
operating
in long
term)

25. ROE = ROA * Leverage Ratio

how much of assets is financed by equity

indicate company's policy regarding financing

of its assets
>1, too high ratio is a warning about risk

26. Debt-to-Equity Ratio = Total Liabilities/ Total Shareholders Equity

27. Debt-to-Assets Ratio = Total Liabilities/ Total Assets

higher ratio, greater risk

28. Contribution Margin (CM) = Revenue - Variable Cost

29. Contribution Margin per unit = Unit selling price - Unit variable cost
30. Contribution Margin Ratio = CM per unit/ Unit selling price
31. Break-Even Analysis - Unit-sold Approach
Profit(BT) = (S - V)X - F => X = [F + Profit(BT)]/ (S - V)

- S = unit selling price

X = F + ProfitBT
(S V)

CM

- X = number of units
- V = unit variable cost
- F = fixed cost
32. Profit(AT) = Profit(BT) * (1 - ) => Profit(BT) = Profit(AT)/ (1-)

- = tax rate
33. Break-Even Analysis - Sales Revenue Approach
Profit(BT) = R - F - (vr)R
Sales dollar = [F+Profit(BT)]/ CM Ratio

- R = SX
- vr = V/S

total variable cost/ sales revenue

unit