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Important Formulae in Financial Management
- Profit After Tax (PAT) = Operating profit + Non-operating
incomes – Non Operating expenses – taxation.
- Current ratio = current assets/current liabilities.
- Liquid ratio = liquid assets/liquid liabilities.
- Fixed assets turnover ratio =Net sales/Fixed assets
- Debtors turnover ratio = Net credit sales/closing sundry
- Capital employed = Fixed assets + Investments + Current
assets – Current liabilities
- Capital Employed = Share capital + reserves & surplus +
long term liabilities.
- Debt equity ratio = External liabilities / shareholder
funds or Long term liabilities / shareholder funds.
- Return on assets (ROA) = (Net profit/sales) * 100
- Return On Capital Employed (ROCE) = (Net profit + Interest
on long term sources/Capital employed) * 100.
- Capital gearing ratio = Fixed income bearing securities/equity
- Earnings Per Share (EPS) = (Net Profit after tax (PAT) –
Preferred dividend) / No. of equity shares outstanding.
- Marginal contribution = sales – variable cost.
- Operating leverage = contribution / Earnings before
interest and tax (EBIT).
- Financial Leverage = Earnings before interest and tax (EBIT)
/ (EBIT- Interest).
- Combined leverage = Operating leverage * Financial
- Sales revenue – Costs = Net revenue
- Net revenue – Tax liability = Revenue after taxes.
- Revenue after taxes + depreciation = Net cash inflow.
- Pay-back period is period within which cash inflows = cash
- Pay-back period = Cash outlay / annual cash inflow.
- Accounting rate of return (ARR) = Total profits / (net
investment in project * no. of years of profit) * 100.
- Certainty – Equivalent coefficient = Certainty cash inflows
/ risky cash inflows.
- Ordering cost = (Annual Demand / Volume per order) * Ordering
- Carrying cost = (Q/2) * c.
- Reorder level = Max. lead time * max. usage.
- Maximum level = Reorder level * reorder quantity- (Minimum
usage * minimum lead time).
- Minimum level = Reorder level-(normal usage * normal lead
- Danger level =Normal usage * lead time for emergency
- Safety stock = (Maximum usage * maximum lead time) –
(Normal usage * normal lead time)
- Safety stock = Minimum level
- Maximum level = Safety stock + Economic Order Quantity (EOQ)
- Reorder level = Safety stock + (Normal usage * normal lead
- Average stock level = Safety stock +(Economic Order Quantity
- Inventory turnover = Value of material consumed / average
- Value of material = Opening stock + purchases – closing
- Number of orders = Annual consumption / Economic Order Quantity
- Multiple Choice Questions (MCQ) on Material Science
- Financial Management Questions
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