Category Ratio Numerator Denominator

Return on sales/ Profit margin Net income

¸ Net sales
Gross profit ratio/ Gross margin ratio Gross profit
Profitability ratios
Return on assets Average assets
Net income ¸
Return on equity Average SHE
Current ratio Current assets
Liquidity ratios Quick ratio/ Acid test ratio Quick assets ¸ Current liabilities
Cash ratio Cash and cash equivalents
Asset turnover Average assets
Fixed asset turnover Net sales ¸ Average fixed assets (PPE accounts)
Current asset turnover Average current assets
Inventory turnover COGS ¸ Average inventory
Receivable turnover Net credit sales ¸ Average A/R
Payable turnover Net credit pruchases ¸ Average A/P
Efficiency ratios Days to sell inventory/ Iventory conversion Inventory turnover
period/ Average inventory period

Days sales outstanding/ Receivables 360 days ¸

Receivable turnover
collection period/ Average collection period

Days payable outstanding/ Payables Payable turnover

defferal period/ Average payment period
Debt ratio Assets
Liabilities ¸
Debt-to-equity ratio SHE
Equity ratio SHE ¸ Assets
Equity multiplier Assets ¸ SHE
Solvency ratios
Times interest earned/ Interest coverage Interest expense
ratio
EBIT ¸
Debt service coverage ratio/ Debt coverage Total debt service
ratio
Outstanding shares
Book value per preferred share:
Liquidation value of PS / Outstanding PS
Book value per share SHE ¸
Book value per ordinary share:
(SHE - Liquidation value of PS) /
Outstanding OS
Market ratios (Net income - Preferred
Earnings per share ¸ Outstanding OS
dividends)
Market-to-book ratio Book value per share
Market price per share
Price-earning ratio ¸
Earnings per share
Dividend payout ratio Dividend per share
Retention ratio 1 - Dividend payout
Dividend yield Dividend per share ¸ Market price per share

Lockbox & Concentration Net benefit/Net cost Savings from timely deposit - Net cost of lockbox
Banking
Where:
Savings from timely deposit Average daily collection x No. of float days reducedInterest rate) x Interest rate
Net cost of lockbox Bank service charge - Avoidable internal processing cost

Operating cycle Operating cycle Days to sell inventory + Days sales outstanding
Cash conversion cycle Cash conversion cycle Operating cycle - Days payable outstanding

Optimal cash balance C* √2DT / i

Where:
C* - Optimal cash balance
D - Annual demand for cash
T - Fixed transaction cost/converstion cost
i - Interest rate on marketable securities (opportunity cost of holding cash rather than investing)

Average cash balance Optimal cash balance ¸ 2

No of conversion per year D ¸ C*
Total opportunity cost Average cash balance x i
Total conversion cost No. of conversion x T

Effective yield of T-bills Discount Face value of T-bill - Price of the T-bill or the discounted amount
Effective interest rate = Discount 360 days
x
T-bill price Days to maturity

Inventory management Economic order quantity √2DO / C

Where:
D - Annual demand in units of inventory
O - Fixed cost per order
C - Carrying cost per unit

Carrying costs Total carrying cost Average inventory x C = Carrying cost per unit
Average inventory EOQ ¸ 2 + Safety stock, if any

Ordering costs Total ordering cost No. of orders per year x O = Cost per order
No. of orders per year D ¸ EOQ

Reorder point Reorder point Normal lead time usage + Safety stocks (if any)
Normal lead time usage Normal lead time x Average daily usage
Safety stocks (Max. lead time - Normal lead x Average daily usage
time)

Trade credits Effective rate (cost of cash discount) Discount rate 360 days
x
100% - Discount rate Credit period - Discount period

Bank loans Effective rate (discounted notes) Interest expense or discount 360 days
x
Face value - Discount Maturity

Interest expense on loan -

Loan with restricted Effective rate 360 days
Interest income on
compensating balance
compensating balance x
Face value of loan - Maturity
Compensating balance

EFN/AFN Projected increase in assets - Spontaneous liabilities - Increase in retained earnings

EFN
A* X %ΔS - L* X %ΔS - P X S1 X R
Where:
A* - assets that vary directly with sales )normally, total assets)
L* - spontaneous liabilities (trade and other payables, excluding notes payable and long-term debts)
S0 - sales on current year
S1 - sales next year
ΔS - change in sales or S1 - S0
%ΔS - ΔS / S0
P - profit margin ratio/return on sales
R - retention ratio

Leverage DOL Contribution margin ¸ EBIT or Operating income

% change in EBIT ¸
% change in sales
% change in EBIT (next year) DOL x

DFL EBIT ¸ EBT

% change in EPS ¸
% change in EBIT
% change in EPS (next year) DFL x

DTL DOL x DFL

Contribution margin ¸ EBT
% change in EPS x
% change in sales
% change in EPS (next year) DTL x

Income statement leverage Sales xxx

analysis Less: Variable cost (xxx)
Contribution margin xxx
Less: Fixed cost (Operating leverage) (xxx)
EBIT/Operating income xxx
Less: Interest (Financial leverage) (xxx)
EBT xxx
Less: Income tax expense (xxx)
Net income xxx
Divide by: Outstanding shares (xxx)
EPS xxx

Cost of Capital Cost of debt (Kdebt) Effective interest rate x (1 - Tax rate)
Cost of preferred stock (KPS) Dividend per share ¸ Net market price per share
Cost of common stock (KCS) D1 + g
P0 - f
Where:
D1 = Dividend per share next period
P0 = Current period market price per share
f = Floatation cost
g = Dividend growth rate per year

D1 D0 + (D0 x g)

Cost of retained earnings (KRE) (D1 / P0 ) + g

Where:
P0 = Current period market price per share (Floatation cost is not deducted)
g = Dividend growth rate per year
D1 = Dividend per share next period

Capital asset pricing model (KCAPM) rf + 𝛽 (rm - rf)

Where:
rf = Risk free rate (benchmarked from government-issued securities)

𝛽 = Beta coefficient (a form of systematic risk)

rm = Market rate of return

Risk premium 𝛽 x (rm - rf)

Weighted average cost of capital (KWACC) S x (w x k)

Where:
k = the particular cost of capital of a financing source
w = weight assigned to each financing source which is equal to the market value of a particular financing source which is equal
to the market value of a particular financing source divided by the total market values of all the financing sources being
considered

Price factor USTY x (UGPTY - UGPLY)

Gross profit variance analysis 2 - way
Volume factor
UGPLY x (USTY - USLY)
Volume factor
3 - way Sales price factor USTY x (SPTY - SPLY)
Cost price factor USTY x (UCTY - UCLY)
Sales price variance USTY x (SPTY - SPLY)
Sales volume variance SPLY x (USTY - USLY)
4 - way
Cost price variance USTY x (UCTY - UCLY)
Cost volume variance UCLY x (USTY - USLY)

Value-based management ROI NI ¸ Ave. invested capital

DuPont ROI Return on sales x Asset turnover

Residual income NI - (Required rate of return x Ave. invested

capital)

Spread ROI - Cost of capital

Economic value added NOPAT - [(TA - CL) x WACC]

NOPAT EBIT x (1 - tax rate)

TA - CL NCL + SHE x (Long-term debt + Equity) (Capital Structure)

Market value added Market value of the firm - Invested capital

(debt and equity) (original issuance)

Free cash flow to firm NOPAT + Depreciation expense -/+ Change in net working capital - Capital expenditures
(increase = minus / decrease = add)

Generic free cash flow Operating cash flow - Capital expenditure