sure success fm formulae

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Formulae in

FINANCIALMANAGEMENT

Cost Accounting&

Financial Management

CA – IPCC

Part I



Chapter 1 : TIME VALUE OF MONEY

FV = PV(1+r)n

Meaning of Terms

FV = Future Value,

PV = Present Value,

r = % rate of interest,

n = The time gap.

Chapter 2 : CAPITAL BUDGETING

ARR = Average PAT p.a/ Net investment.

Profitability index (PI)/ Desirability factor = Total of Discounted Cash Inflows/

Total Discounted Cash Outflows.

EAC = Cash Outflows per annum+ EAI

EAI = Initial Investment / Relevant Annuity Factor.

Meaning of Terms

EAC = Equivalent Annual Costs

PI = Profitability Index

EAI = Equivalent Annual Investment



Chapter 6 : CAPITAL STRUCTURE

debt of Value Market

eCh Interest Annual arg=

dk

EquityovValue Market

Earnings Equityk

e =

V

E k

V

Dk k ed o ×+×=

V

Ek

V

Dk k edo ×+×=

( )dooe k k E

Dk k −+=

belongsfirmthewhichtoclassrisk thetoapplicablerateDiscount

IncomeOperatingExpectedEDV =+=

( )dooe k k E

Dk k −+=

Meaning of Terms

Kd = Cost of debt

Ke = Cost of equity

V = Market Value of the firm (V)

D = Market value of debt (D)

E = Market value of Equity

ko = Overall capitalization rate for the firm



Chapter 7 : Ratio Analysis

Current Ratio =s LiabilitieCurrent

AssetsCurrent

Quick Ratio = LiabiltiesQuick

AssetsQuick

Cash Ratio =s LiabilitieCurrent

Securities MarketableCash +

Owner’s Equity to Total Equity Ratio = AssetsTotal

Equityor

EquityTotal

EquitysOwner '

Debt Equity Ratio = Equity

Debt

Debt Service Coverage Ratio =)( component principals Instalment Interest

servicedebt for available Earnings

+

Interest Coverage Ratio = Interest

EBIT Taxand Interest Before Earnings ][

Preference Dividend Coverage Ratio = Dividendseference

PAT Tax After ofit

Pr

][Pr

Equity Dividend Coverage Ratio = Dividend Equity

Dividend eferencePAT Tax After ofit Pr][Pr −

Capital Gearing Ratio =

LossesSurplusand servesCapitalShare Equity

loansterm Long DebenturesCapitalShareeference

−+

++

Re

Pr

Or

uritiesbearingincomeFixed Non

uritiesbearingincomeFixed

sec

sec

−

Fixed Assets to Long term fund Ratio =FundsTerm Long

AssetsFixed

Proprietary Ratio = AssetsTotal

EquityOwnersor Employed Capitalor Fundsoprietary 'Pr

Proprietary funds = Share Capital + Reserves and Surplus – Fictitious Assets

Total Assets = Total Assets as per Balance Sheet except fictitious assets and losses.

Capital Turnover Ratio = Employed Capital

Sales

Fixed Assets Turnover Ratio = AssetsFixed

Sales



Working Capital Turnover Ratio =CapitalWorking

Sales

Inventory Turnover Ratio = Average Stock = ½ X [Opening Stock + Closing Stock]

Raw Material Turnover Ratio =Stock Materials Raw Average

Consumed Materials Raw

Debtors’ Turnover Ratio =ceivable Accounts Average

SalesCredit

Re

Average Collection Period =

RatioTurnover Debtorsor

salescredit Daily Average

ceivable Accounts Average 365Re

Creditors’ Turnover Ratio =Payable Accounts Average

PurchasesCredit

Average Payment Period

= RatioTurnover Creditors

or PurchaseCredit Daily Average

Payable Accounts Average 365

Return on Equity =

AssetsFictitiousSurplusand servesCapitalShare Equity

Dividend eferencePAT

−+

−

Re

Pr

Earnings per share =sharesequityof Number

Dividend eferenceTaxes After ofit PrPr −

Dividend per share =sharesequityof Number

rsshareholdeequitythetod distributedividendsTotal

Price Earnings Ratio =share per Earning

Share per ice Market Pr

Return on Capital Employed = %100Re×

Employed Capital

turn

Return on Investment = %100Pr

× Employed Capital

Taxand Interest Beforeofit



Gross Profit Ratio = %100Pr

×Sales

ofit Gross

Operating Profit Ratio = %100Pr

×Sales

ofit Operating

Net Profit Ratio = %100Pr

×Sales

ofit Net

Dividend Yield = %100×share per price Market

share per Dividend

ROE = Equity Assets

AssetsSales

SalesProfit Net

EquityProfit Net

××××××××====

Meaning of Terms

Current Assets = Inventories + Sundry Debtors + Cash and Bank Balances + Loans and

Advances + Marketable non-trade securities at market value.

Current Liabilities = Trade creditors + Bills payable + Outstanding expenses + Provision

for taxation + Proposed Dividend + Other Provision + Cash Credit +

Bank Overdraft + Unclaimed Dividend

Quick Assets = Current Assets – Inventories – Prepaid Expenses

Quick Liabilities = Current Liabilities – Bank Overdraft – Cash Credit

Owner’s Equity = Share Capital (both equity and preference) + Reserves and Surplus (–)

Fictitious Assets

Total Equity = Owner’s Equity + External Equity [i.e., outside liabilities inclusive of

current liabilities and provisions]

Or

Balance Sheet Total – Miscellaneous Expenditure

Equity = Owner’s Equity

Debt = Long term loan fund.

Proprietary funds = Share Capital + Reserves and Surplus – Fictitious Assets

Total Assets = Total Assets as per Balance Sheet except fictitious assets and losses.

Average Stock = ½ X [Opening Stock + Closing Stock]



Chapter 9 : COST OF CAPITAL

P0 = 1. (1-t). PVIFA (kd, n) + F.PVIF (kd,n)

kd

(((( ))))

20PF

n0PF

t1I

++++

−−−−++++−−−−

Cost of term loans = Interest rate × (1- tax rate)

P0 = D.PVIFA(kp,n) + F.PVIF(kp,n)

kp =

20PF

n

0PF

D++++

−−−−

++++

ke g0P1D

++++

ke = Rf + B (Rm – Rf )

Wt =1tPtPtD

−−−−

−−−−

Ke =P1E

WACC = ∑∑∑∑====

n

1r

rW rk

EPS =1N

)t1(EBIT −−−−

EPS =2N

)t1.)(IntEBIT( −−−−−−−−



Meaning of Terms

P0(Cost of debentures) = Present value of the debenture (net of floatation cost )

I = Annual interest payable on the debenture

t = Tax rate

F = Principal amount repayable at the maturity time

kd = Cost of debenture

n = Maturity period

P0(Cost of preference capital) = Net amount realized per share (net of floatation cost)

D = Preference dividend per share

F = Redemption price

kp = Cost of preference capital

D1 = Expected dividend per share next year = D0 × (1 + g)

D0 = Last paid dividend per share

P0 = Current market price per share

g = Growth rate

b = Retention Ratio

r = Return on EquityRf = Risk free rate

B = Beta

Rm = Return on market

Wt = Wealth Ratio

E1 = Expected EPS for the next year

Wr = Weight of rth source of capital

Kr = Cost of rth Source of capital

Int = Total interest charge on debt financing.

N1 = Total No. of Equity Shares under financial Plan 1

N2 = Total No. of equity Shares under Financial plan 2

t = Tax Rate

Chapter 10 : Leverage Analysis

Equity Earnings = Sales – Variable Costs – Fixed costs – Interest – Tax – Preference

Dividend

Equity Earnings = [Q (P-V)-F-I] × (1-t)-DP

Earnings Per ShareShares Equityof Number

Earnings Equity =

n

DP-t)-(1I]-F-V)-(P[Q ×



DOL = EBIT

onContributi

F V PQ

V PQ

Q

Q EBIT

EBIT

SalesinChangePercentage

EBIT inChangePercentage=

−−

−=

∆

∆

=)(

)(

DFL =

t

D I EBIT

EBIT

EBIT

EBIT EPS EPS

EBIT inChangePercentage

EPS inChangePercentage

P

−−−

=∆

∆

=

1

DCL =

t

D I F V PQ

V PQ

Q

Q EPS

EPS

SalesinChangePercentage

EBIT inChangePercentage

P

−−−−−

−=

∆

∆

=

1)(

)(

Meaning of Terms

Q = Number of units sold

P = Price per unit

V = Variable Cost per unit

F = Total fixed cost

I = Total Interest

t = Tax rate

DP = Preference Dividend

n = Number of equity shares

sure success fm formulae

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