Formula Sheet for Financial Decision Making
Financial ratios
Gross margin (%)
Gross profit
Revenue
à100
Operating margin (%)
Operating profit
Revenue
à100
Return on capital employed (%)
Operating profit
Shareholders equity + Long?term debt
à100
Return on equity (%)
Profit after taxation
à100
Shareholders equity
Return on total assets (%)
Profit after taxation
Total assets
à100
Asset turnover
Revenue
Total assets
Current ratio
Current assets
Current liabilities
Quick test (acid ratio)
Current assets ? Inventory
Current liabilities
Working capital turnover
Revenue
Net working capital
Inventory turnover
Cost of sales
Inventory
Inventory days
Inventory
Cost of sales
à365
Debtors days
Trade receivables
Revenue
à365
or
Trade debtors
Revenue
à365
Financial Decision Making Edinburgh Business School
1
Formula Sheet for Financial Decision Making
Creditors days
Trade payables
Purchases
à365
or
Trade creditors
Purchases
à365
If 5rchases&igure not available, use ïst of salesŠFinancial gearing (%)
Long?term debt
Long?term debt + Shareholders equity
à100
Interest cover (times)
Operating profit
Interest charges
Earnings per share (EPS)
Profit after taxation
Number of ordinary shares in issue
Price / earnings ratio (P/E)
Share price
Earnings per share
Earnings yield
Earnings per share
Share price
Dividend per share (DPS)
Total dividends for the period
Number of ordinary shares in issue
Dividend cover
Profit after taxation
Total dividends for the period
Dividend payout (%)
Total dividends for the period
à100
Profit after taxation
or
DPS
EPS
à100
Dividend yield
Dividend per share
Share price
2
Edinburgh Business School Financial Decision Making
Formula Sheet for Financial Decision Making
Working capital
Economic order quantity (EOQ)
?
2????
??
Cash management (1)
2????
??=?
??
Cash management (2)
3 3???? 2
?? = 3 [?
4??
]
Learning curve
?? = ???? ??
Variances
Sales price
(Actual selling price ? Budgeted selling price) àActual units sold
Sales volume
(Actual units sold ? Budgeted quantity) àBudgeted contribution per unit
Material price
(Budgeted cost ? Actual cost) àActual quantity used
Material usage
(Budgeted quantity ? Actual quantity) àBudgeted cost per unit
Labour rate
(Budgeted rate ? Actual rate) àActual time taken
Labour efficiency
(Budgeted time ? Actual time taken) àBudgeted rate
Variable overhead rate
(Budgeted rate ? Actual rate) àActual time taken
Variable overhead efficiency
(Budgeted time ? Actual time taken) àBudgeted rate
Fixed overhead expenditure
(Budgeted fixed overhead ? Actual fixed overhead)
Financial Decision Making Edinburgh Business School
3
Formula Sheet for Financial Decision Making
Cost of capital
Cost of equity
??0 (1+??)
???? =
??0
+ ??
or
???? = ???? + ??(???? ? ???? )
WACC
????
????
+ ???? (1 ? ??)
???? +????
????
???? +????
Parity theory
PPPT
??1 = ??0
(1+???? )
(1+??? )
IRPT
??0 = ??0
(1+???? )
(1+??? )
Financial arithmetic
Effective annual rate of interest
?? ??
[1 + ] 1
??
Present value of 1
[1 + ??]ÿ
Present value of an annuity of 1
11+??)ÿ
??
4
Edinburgh Business School Financial Decision Making
Tables
Present Value and Annuity Tables
Table 1: Present value tables
Present value of 1 = (1 + ??)???
r = discount rate
n = number of periods
Periods 1%
2%
3%
1
0.990 0.980 0.971
2
0.980 0.961 0.943
3
0.971 0.942 0.915
4
0.961 0.924 0.888
5
0.951 0.906 0.863
6
0.942 0.888 0.837
7
0.933 0.871 0.813
8
0.923 0.853 0.789
9
0.914 0.837 0.766
10
0.905 0.820 0.744
11
0.896 0.804 0.722
12
0.887 0.788 0.701
13
0.879 0.773 0.681
14
0.870 0.758 0.661
15
0.861 0.743 0.642
16
0.853 0.728 0.623
17
0.844 0.714 0.605
18
0.836 0.700 0.587
19
0.828 0.686 0.570
20
0.820 0.673 0.554
4%
0.962
0.925
0.889
0.855
0.822
0.790
0.760
0.731
0.703
0.676
0.650
0.625
0.601
0.577
0.555
0.534
0.513
0.494
0.475
0.456
5%
0.952
0.907
0.864
0.823
0.784
0.746
0.711
0.677
0.645
0.614
0.585
0.557
0.530
0.505
0.481
0.458
0.436
0.416
0.396
0.377
Financial Decision Making Edinburgh Business School
6%
0.943
0.890
0.840
0.792
0.747
0.705
0.665
0.627
0.592
0.558
0.527
0.497
0.469
0.442
0.417
0.394
0.371
0.350
0.331
0.312
7%
0.935
0.873
0.816
0.763
0.713
0.666
0.623
0.582
0.544
0.508
0.475
0.444
0.415
0.388
0.362
0.339
0.317
0.296
0.277
0.258
8%
0.926
0.857
0.794
0.735
0.681
0.630
0.583
0.540
0.500
0.463
0.429
0.397
0.368
0.340
0.315
0.292
0.270
0.250
0.232
0.215
9%
0.917
0.842
0.772
0.708
0.650
0.596
0.547
0.502
0.460
0.422
0.388
0.356
0.326
0.299
0.275
0.252
0.231
0.212
0.194
0.178
10%
0.909
0.826
0.751
0.683
0.621
0.564
0.513
0.467
0.424
0.386
0.350
0.319
0.290
0.263
0.239
0.218
0.198
0.180
0.164
0.149
5
Tables / Present Value and Annuity Tables
Present value of 1 = (1 + ??)???
r = discount rate
n = number of periods
Periods 11% 12% 13%
1
0.901 0.893 0.885
2
0.812 0.797 0.783
3
0.731 0.712 0.693
4
0.659 0.636 0.613
5
0.593 0.567 0.543
6
0.535 0.507 0.480
7
0.482 0.452 0.425
8
0.434 0.404 0.376
9
0.391 0.361 0.333
10
0.352 0.322 0.295
11
0.317 0.287 0.261
12
0.286 0.257 0.231
13
0.258 0.229 0.204
14
0.232 0.205 0.181
15
0.209 0.183 0.160
16
0.188 0.163 0.141
17
0.170 0.146 0.125
18
0.153 0.130 0.111
19
0.138 0.116 0.098
20
0.124 0.104 0.087
6
14%
0.877
0.769
0.675
0.592
0.519
0.456
0.400
0.351
0.308
0.270
0.237
0.208
0.182
0.160
0.140
0.123
0.108
0.095
0.083
0.073
15%
0.870
0.756
0.658
0.572
0.497
0.432
0.376
0.327
0.284
0.247
0.215
0.187
0.163
0.141
0.123
0.107
0.093
0.081
0.070
0.061
16%
0.862
0.743
0.641
0.552
0.476
0.410
0.354
0.305
0.263
0.227
0.195
0.168
0.145
0.125
0.108
0.093
0.080
0.069
0.060
0.051
17%
0.855
0.731
0.624
0.534
0.456
0.390
0.333
0.285
0.243
0.208
0.178
0.152
0.130
0.111
0.095
0.081
0.069
0.059
0.051
0.043
18%
0.847
0.718
0.609
0.516
0.437
0.370
0.314
0.266
0.225
0.191
0.162
0.137
0.116
0.099
0.084
0.071
0.060
0.051
0.043
0.037
19%
0.840
0.706
0.593
0.499
0.419
0.352
0.296
0.249
0.209
0.176
0.148
0.124
0.104
0.088
0.074
0.062
0.052
0.044
0.037
0.031
20%
0.833
0.694
0.579
0.482
0.402
0.335
0.279
0.233
0.194
0.162
0.135
0.112
0.093
0.078
0.065
0.054
0.045
0.038
0.031
0.026
Edinburgh Business School Financial Decision Making
Tables / Present Value and Annuity Tables
Table 2: Annuity tables
Present value of an annuity of 1 =
r = discount rate
n = number of periods
Periods 1%
2%
1
0.990 0.980
2
1.970 1.942
3
2.941 2.884
4
3.902 3.808
5
4.853 4.713
6
5.795 5.601
7
6.728 6.472
8
7.652 7.325
9
8.566 8.162
10
9.471 8.983
11
10.368 9.787
12
11.255 10.575
13
12.134 11.348
14
13.004 12.106
15
13.865 12.849
16
14.718 13.578
17
15.562 14.292
18
16.398 14.992
19
17.226 15.678
20
18.046 16.351
???(1+??)???
3%
0.971
1.913
2.829
3.717
4.580
5.417
6.230
7.020
7.786
8.530
9.253
9.954
10.635
11.296
11.938
12.561
13.166
13.754
14.324
14.877
??
4%
0.962
1.886
2.775
3.630
4.452
5.242
6.002
6.733
7.435
8.111
8.760
9.385
9.986
10.563
11.118
11.652
12.166
12.659
13.134
13.590
Financial Decision Making Edinburgh Business School
5%
0.952
1.859
2.723
3.546
4.329
5.076
5.786
6.463
7.108
7.722
8.306
8.863
9.394
9.899
10.380
10.838
11.274
11.690
12.085
12.462
6%
0.943
1.833
2.673
3.465
4.212
4.917
5.582
6.210
6.802
7.360
7.887
8.384
8.853
9.295
9.712
10.106
10.477
10.828
11.158
11.470
7%
0.935
1.808
2.624
3.387
4.100
4.767
5.389
5.971
6.515
7.024
7.499
7.943
8.358
8.745
9.108
9.447
9.763
10.059
10.336
10.594
8%
0.926
1.783
2.577
3.312
3.993
4.623
5.206
5.747
6.247
6.710
7.139
7.536
7.904
8.244
8.559
8.851
9.122
9.372
9.604
9.818
9%
0.917
1.759
2.531
3.240
3.890
4.486
5.033
5.535
5.995
6.418
6.805
7.161
7.487
7.786
8.061
8.313
8.544
8.756
8.950
9.129
10%
0.909
1.736
2.487
3.170
3.791
4.355
4.868
5.335
5.759
6.145
6.495
6.814
7.103
7.367
7.606
7.824
8.022
8.201
8.365
8.514
7
Tables / Present Value and Annuity Tables
Present value of an annuity of 1 =
r = discount rate
n = number of periods
Periods 11% 12%
1
0.901 0.893
2
1.713 1.690
3
2.444 2.402
4
3.102 3.037
5
3.696 3.605
6
4.231 4.111
7
4.712 4.564
8
5.146 4.968
9
5.537 5.328
10
5.889 5.650
11
6.207 5.938
12
6.492 6.194
13
6.750 6.424
14
6.982 6.628
15
7.191 6.811
16
7.379 6.974
17
7.549 7.120
18
7.702 7.250
19
7.839 7.366
20
7.963 7.469
8
13%
0.885
1.668
2.361
2.974
3.517
3.998
4.423
4.799
5.132
5.426
5.687
5.918
6.122
6.302
6.462
6.604
6.729
6.840
6.938
7.025
???(1+??)???
??
14%
0.877
1.647
2.322
2.914
3.433
3.889
4.288
4.639
4.946
5.216
5.453
5.660
5.842
6.002
6.142
6.265
6.373
6.467
6.550
6.623
15%
0.870
1.626
2.283
2.855
3.352
3.784
4.160
4.487
4.772
5.019
5.234
5.421
5.583
5.724
5.847
5.954
6.047
6.128
6.198
6.259
16%
0.862
1.605
2.246
2.798
3.274
3.685
4.039
4.344
4.607
4.833
5.029
5.197
5.342
5.468
5.575
5.668
5.749
5.818
5.877
5.929
17%
0.855
1.585
2.210
2.743
3.199
3.589
3.922
4.207
4.451
4.659
4.836
4.988
5.118
5.229
5.324
5.405
5.475
5.534
5.584
5.628
18%
0.847
1.566
2.174
2.690
3.127
3.498
3.812
4.078
4.303
4.494
4.656
4.793
4.910
5.008
5.092
5.162
5.222
5.273
5.316
5.353
19%
0.840
1.547
2.140
2.639
3.058
3.410
3.706
3.954
4.163
4.339
4.486
4.611
4.715
4.802
4.876
4.938
4.990
5.033
5.070
5.101
20%
0.833
1.528
2.106
2.589
2.991
3.326
3.605
3.837
4.031
4.192
4.327
4.439
4.533
4.611
4.675
4.730
4.775
4.812
4.843
4.870
Edinburgh Business School Financial Decision Making

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