Important Ratio Analysis for F9 Paper

Formula Sheet
Profitability Ratio

Gross Profit
100
Sales

1. Gross Profit Margin =

2. Operating Profit Margin =

3. Net Profit =

Profit Before Interest Tax ( PBIT )

100
Sales

Net Profit (Profit After Tax)

100
Sales

Return Ratio
1. Return on Capital Employed (ROCE) or Return on Investment (ROI) =

Profit
100
Investment

PBIT
100
Capital Employed

Turnover

= Profit Margin

Asset

Profit After TaxPreferance Dividend

100
Equity

2. Return On Equity =

Operating Cycle/Working Capital Cycle

1. Inventory Days (Inventory Holding Period ) =

Inve ntories
365 days
Cost of Sales
2. Receivable Days =
3. Payable Days =

Receivables
365 days
Total Credit Sales

Payables
365 days
Total Credit Sales

Payables
365 days
Cost of Sales

4. Net Working Capital = Current Assets Current Liabilities = Net

Current Assets
5. Operating Cycle = Inventory Days + Receivable Days
6. Cash / Net Operating Cycles = Inventory Days + Receivable Days

Payable Days

Liquidity Ratio
1. Current Ratio =

Current Assets
Current Liabiloties

2. Quick or Quick Asset (Acid test) Ratio =

Current AssetsInventories
Current Liabilities
3. Working Capital to Sales Ratio =

Working Capital
100
Sales

Activity Ratio

Inventory Turnover =

Cost of Sales
Inventory

Accounts Receivable Turnover =

Total Asset Turnover =

Fixed Asset Turnover =

Annual Credit Sales

Accounts Receivable

Sales
1
Capital Employed
Sales
1
Assets

Debt and Gearing

Debt Ratio =

Total Debts
100
Total Assets

Financial Gearing or Gearing Ratio =

Long term Debt

10 0
Shareholder s ' Equity+ Longterm Debt
Cost
100
Variable Cost

Operational Gearing =

Cost
100
Total Cost

Contribution
100
Profit

Leverage =

Shareholder s' Equity

100
Shareholder s ' Equity+ Total Long term Debt

Interest Cover =

PBIT
1
Interest Payable

PB IT
1
Finance Cost

Earning Based Ratio

Earnings Per Share =

Earnings Attributable
Ordinary Shareholders

Weighted Average number of Ordinary Shares

PAT Pref . Shareholder s' Dividend

number of Ord inary sharesissue
=

Profit After Tax ( PAT )Pref . Shareholder s' Dividend

Weighted Average Number of Ordinary Shares

PAT Pref . Shareholder s' Dividend

number of Ord inary sharesissue
=

Earning Yield =

Share Price(Market Price per Share)

Price Earnings Ratio

EPS
100
Share Price(Market Price per Share)

= $X

1
100
PE Ratio

Price Earning (P/E) Ratio =

Share Price(Market price per Share)

1
EPS

1
1
Earnings Yield

Dividend Payout Ratio =

DPS
EPS

Dividends
Earnings

Investor / Dividend Based Ratio

Dividend Per Share (DPS) =

Ordinary Dividend DeclaredPaid For The Year

Weighted Average Number of Ordinary Shares
Dividend
Number of Ordinary Shares Issue

EPS
1
DPS

Dividend Cover =

PAT Preferance Shareholder s' Dividend

1
D ividend
Dividend Yield =

= $X

Opening Share
price must be used
if available.

Dividend
100
Share Price ( Market Price )
=

DPS for the year

100
Current Market Price Per Share(Ex Market price per Share)

Other Ratio
Total Share Holders Return(TSR) =

DPS +Closing Share Price Opening Share Price

100
Closing Share Price
=

D1 + P1P1
100
P1

Simple Growth Per Period =

Result for The Current Period

1
Result for The Previoys Period

Arithmetic Mean Growth = Average of Simple Growth Per Period

Geometric Growth, Average Compound Period Growth =

x1

Result for The Final Year

Result for The StartingYear -1

Additional Note :
Capital Employed = Capital + Long-term Liability
= Non Current Assets + Current Assets Current
Liabilities
= Non Current Assets + Current Assets + Investments
Current Liabilities
= Equity + Long-term Debt
= Total Assets Current Liabilities

Working Capital
1. Working Capital = Investment in Inventory + Investment in Receivable +
Investment in Cash + Investment in Other Current Assets
Net Working Capital = Investment in Current Assets- Current Liabilities =
Inventory + Receivable + Cash + Current Liabilities
2. Cash Operating Cycle :
Raw Materials Inventory Holding Period
Accounts Payable Payment Period
Average Production Period
Inventory Turnover Period (Finished
Goods)
Accounts Receivable Payment Period

Days
X
(x)
X
X
X

Operating Cycle

3. Sales Revenue/Net Working Capital=

Sales Revenue
Current AssetsCurrent Liabilities

4. EOQ Related Formula :

a) EOQ

2 C o D
Ch

b) Re-Order Level

Max Leadtime Max Demand per Day

c) Maximum Inventory Level = Reorder Level +Reorder Quantity (EOQ,Q)(Minimum Lead time Minimum Demand per Day)
d) Minimum/Safety/Buffer Inventory Level = Reorder Level-(Average Lead
time Average Demand per Day)
e) Average Inventory = (Buffer Inventory level + EOQ/2 ) OR (Buffer Inventory
Level + Q/2)

f) Total Ordering Cost =

g) Total Holding Cost =

D
Co) or (
EOQ

D
C o )
Q

Buffer Inventory +EOQ/2)C h

OR (Buffer Inventory

+Q/2 ) C h
h) Total Purchase Cost =

Cost per unit after any discount

i) Total Cost = Total Ordering Cost +Total Holding Cost +Total Purchase Cost
5. Inventory Turnover period Related :

Inventory Turnover Period (FG) =(Average Inventory Cost of

Sales)365days
Raw Material Inventory Holding Period = (Average Raw material
Inventory Annual Purchase)365 days

Average Production Period = (Average WIP Cost of Sale s ) 365 Days

6. Factoring Related Calculation :

Credit Sales for the year Relevant % Charges

Factors Fee =

Pre-factoring Receivables (Pre-fact) = Credit Sales

Prefactoring Receivable Days

365

Post-factoring Receivables (Post-fact) = Credit Sales

Postfactoring Receivable Days

365

Reduction in Receivables = Pre-factoring Receivables Post-factoring

Receivables
Overdraft Interest Saving on Reduction in Receivables = Reduction in
Receivables

Factor Finance Cost = Post-factoring Receivables

Factor )

O/D interest Rate

(% Finance by

(% of interest Charged by Factor)

Overdraft Interest Saving on Factor Financing = Post-factoring

Receivables

(% Finance by Factor ) (O/D Interest Rate)

Pre-factoring Bad debt = Pre-factoring Receivables

Post-factoring Bad debt = Post-factoring Receivables

Saving of Bad debt = Pre-factoring Bad debt Post-factoring Bad debt

Bad Debt Reduction :
For with Recourse (not insured) Factoring = Pre-factoring Bad
debt Post-factoring Bad debt
For with Non-Recourse (insured) Factoring = Pre-factoring Bad
debt
Contract cost Pa :
Where Factoring agreement is for a specific period of time =

% of Bad Debt

% of Bad Debt

(Contract cost or One-off cost) Number of Years

Where Factoring agreement is not for any specific period of
time (ongoing) = Contract cost

7. Annual Discount Cost =

[{(

100
100D

) }1]
365
T

O/D Interest Rate

Where

D= % Discount &
T = Reduction in Credit Period
8. Miller-Orr Model:
Spread = 3
Variance =

3 Transaction Cost (C o ) Daily Varience of Cashflow

4
Daily Interest Cost of holding $ 1Cash(C h )

( Standard Dviation )2 or

( Volatility )2

1
3

 Return Point/ Reset Level = Lower Limit

9. Baumol Model : Optimum Level of Cash, Q =

1
3

Spread

2 C o D
Ch

Investment Appraisal
1. Accounting or Annual Rate of Return (ARR)

Average Annual Accounting Profit

Average Annual Investment Balance
2. Present Value (PV) =
Value of

CF n
(1+r )n

100%

here,

CF n = CF arises in

Yn

& PV =

Y0 .

3. PV of Series of Cash flows for Indefinite Years (Perpetuity):

PV =

CF 1
r , (Here

Value of Year (n-1),

CF 1 = CFs arises in
Y n1 =

CF n
r

Y1 )

. (Where CF is not starts from

Y 1 .)

PV =

CF 1
rg , (Here g = growth rate)

4. PV of Series of Cash flows for Definite Years (Annuity):

PV =

CF 1 {1( 1+r )n }
r

Value of Year (n-1),

PV =

Y n1

CF 1 {1( 1+r )n }
rg

CF n {1( 1+r )n }
r

, (Here g = growth rate)

5. Internal Rate of Return (IRR) = LR +

6. Calculation for Working Capital CFs:

NPV LR
NPV LRNPV HR

( HRLR )

Step-1 : Working Capital to Sales Ratio =

Working CapitalY 0
Sales of Y 1

100%

Step-2 : Working Capital Inflow/Outflow = (Current Years Sales Next

Years Sales)

Working Capital to Sales Ratio

7. Inflation Adjustment :

Money Cash Flow = Real Cash Flow

(1+ Inflation Rate )n

, ( n= No of

years for which Price or Inflation Adjustment is Required)

(1

i ) = (1 +

r)

(1+h)n

{Here, i = Nominal or (money) rate of interest ; r = Real rate of

interest ; h = Rate of Inflation}
8. Sensitivity Analysis :

IRRCost of Capital
Cost of Capital

Sensitivity of Cost of Capital =

Sensitivity of the Variables/ Item of CFs =

100%

NPV of The Projects

NPV of The Project Variables

100%
9. Risk & Uncertainty :

10.

( Probability Possible Outcome)

Expected Value =

Joint Probability = Probability 1

Probability 2

Equivalent Annual Cash flows (EAC) =

NPV of a Replacement Cycle

Annuity Factor for The Cycle Duration
11.

Profitability Index ( PI ) =

NPV
Capital Investment

Rationing)
12.

Postponability Index ( PI ) =

(related to Capital

Old NPV New NPV

Capital Investment Postponed

to Project postpone decision)

Source of Finance

(related

1. Annual Effective Interest Rate, R =

(1+r )n -1{Here, r = Periodic

interest rate or Effective Monthly Interest Rate. n= Number of Period or

Months in a year}
2. Effective Monthly Interest Rate, r = (1+R)1/n -1
3. Effective Annual Installment (EAI) =

Initial MV of a Loan
Annuity Factor For The LoanTerm at R
4. Effective Monthly Installment (EMI) =

Initial MV of a Loan
Annuity Factor For The LoanTerm at r
5. Value/MV/Issue Price of Conventional Bond = PV of Future Interest

(to be paid) & Capital repayment @ r. {here, r = Investors Required

Return}
6. Value/MV/Issue Price of Deep Discount Bond = PV of Future
Interest (to be paid) & Capital repayment @ r. {here, r = Investors
Required Return}
7. Value/MV/Issue Price of Zero Coupon Bond = PV of Future Capital
repayment @ r. {here, r = Investors Required Return}
8. Value/MV/Issue Price of Convertible Bond :
PV of Future Interest (to be paid) @ r
PV of the Higher Of :

-Capital Repayment
-Expected Value of Equity Share

{here, r = Investors Required Return}

$
X
=
X

Conversion Value = No. of Share to be converted in

Conversion Premium = Value of Bond - Conversion Value

Floor Value = PV of Future Interest (to be paid) & Capital repayment @

r.

{here, r = Investors Required Return}

9. Equity Finance :

EPS =

Earnings
No . of Ordinary Shares

Ear nings
Weighted Average No . of Ordinary Shares

Diluted EPS =

Current Share Price

Earnings+ Potential Savings( Earnings)

Further Issue of Ordinary Shares

Weight ed Average No. of Ordinary Shares+ Potential

Share Value /Issue Price = PV of Future Dividend payable to the investors

Discounted @ r. {here, r = Investors Required Return}
Or, Share Value /Issue Price = Expected EPS of the Company

P/E

ratio obtained from the industry or an Identical Company.

10.

Right Issue :

TERP =

( Existing No . Of Shares Share Price ) + ( New No . of Shares Issue Price )Issue Cost
Existing No . Of Shares+ New No . of Shares
(If there is no Issue Cost, then Issue Cost = 0)

11.

Value of Right = TERP Issue Price.

Value of Right per Existing Share =

Ex-Bonus Share Price =

Value of
Exis ting Shares Required
Get 1 Share

No . of Existing Shares Share Price

No . of Existing Shares+ No . of New Shares

CD/SD(Security Deposit and Treasury Bill)

Value of CD(certificate of Deposit) or SD on Maturity = Face Value

Annual Rate of Gain from Treasury Bill = 100

Days
365 days
Maturity

Days
1+r Maturity
( 365 Days )

Face Valueof Treasury Bill Issue price

Face Value