Topic 1.

Investment
P = Principle or original debt
I = Interest only
R = rate of interest per annum
T = time in years or time period
S = the total sum of principle and Interest or the accumulated amount
Important Formula
1. I = Prt
2. S = P + I
3. S = P(1 + rt)
From formula 1.

P=

rt

r=

t=

Pt

I
Pr

From formula 2.

I=SP

P= S - I

From formula 3.

P=

S
1+
rt

S
P

-1

t=

S
-1
P

r=
t

The Compound Interest Formula (compound annually)

r
1+ nt
n

r nt
1+ 1
n

r nt
S
1+ p=

n
S=P

( ( ))
log

t=

( sp )

r
log 1+
n

n I =SP

Topic 2. Stock Exchange

Formula (Shares)
No of. Shares =

Investment
Buying Price

Cost (Investment) without comm. = Buying Price x no of shares

Cost (Investment) with comm. = (Buying Price x no of shares) + Commission*
(comm. Rate of nom. Value)

(Buying Price + (Comm. Rate x nominal value)) x no of shares

(comm. Rate of total cost)

(Buying Price x no of shares) x (1 + Comm. Rate)

Sales (Revenue) without comm. = Selling price x no of shares

Sales(Revenue) after comm. = (Selling price x no of shares)-Comission*
(comm. Rate of nom. value

(Selling price (comm. Rate x nominal rate))x no of shares

(comm. Rate of total cost)

(Selling price x no of shares) x (1 Comm. Rate)

Commission = Commission Amount

Commission x Nominal@par value x no of shares
(Buying@Selling Price x no of shares)@(Total Cost@Sales) x Commission rate

Dividend
Preference Shares = dividend rate x nominal@par value x no of shares x no of years
Ordinary Shares = (Y1 rate + Y2 rate + ) x nominal@par value x no of shares

Total profit = Sales Cost + Dividend

Total Profit (%) =

Capital gain + Dividend gain

Total Profit
x 100
Original Investment

Capital Gain = (Selling price Buying price) x no of shares

Formula (Stocks)

Unit Price =

Price
100

Nominal value =

Investment @ Market Price

Price
100

Dividend @ Interest = nominal value x dividend rate x no of year

Percentage yield =

Total Interest
x 100
Market Price

Sales @ Investment @ Market Price = Nominal value x

Price
100

Profit = Sales Cost + Dividend

Formula (unit Trust)
No. of unit =

Investment
Buying Price

Cost(investment) = No. of unit x Buying Price

Sales(Revenue) = No. of unit x Selling Price
Profit = Sales Cost

Topic 3. Business Ownership

Formula
BEP(Q) =

Cost
@Total Cost=Total Income
SPVC

Margin per product = Income per product Cost per product ( SP VC )

Total cost = Fixed Cost + (VC x Q)
Total Income = SP x Q
Total Profit = Total Income Total Cost @ [(SP VC) x Q] FC
Level of production required profit =

Cost + Required profit

Margin per product

Break-even Profit = 0
** If certain non-cash charges, such as depreciation, must be subtracted from the fixed costs.

Topic 4. Profitability and Liquidity

The basic financial account
Net Purchases = Purchases Purchases Return
Cost of Goods Sold (COGS) = opening stock + net purchases closing stock
Net sales (turnover) = sales sales return
Gross Profit = net sales COGS
Net Profit = gross profit overhead expenses
Capital at end = capital at start + net profit drawings
= fixed assets + current assets liabilities
Capital invested = net assets = net worth

Ratios to assets profitability

Gross profit as a percentage of net turnover (Gross profit margin) =

gross profit
x 100
net sales

Comment : _______% of net sales is gross profit.

Gross profit mark-up =

gross prifit
x 100
cost of sales

Comment : _______% of cost of sales is gross profit.

Overhead expenses as a percentage of net turnover =

Overhead expenses
x 100
net sales

Comment : _______% of net sales is overhead expenses.

Net profit percentage =

net profit
x 100
net sales

Comment : _______% of net asset is net profit.

Net profit mark-up =

net profit
x 100
cost of sales

Comment : _______% of cost of sales is net profit.

net profit[ interest foregone ( x cap . start ) + Salary foregone ]

x 100
Capital at start @ capital invested

Real return on capital =

Average capital employed =

Capital at start +Capital at end

2

Return capital employed (ROCE) =

net profit
x 100
Average capital employed

Comment : The company returned a profit of _______% of the average capital employed.

Average stock =

Stock at start + Stock at end

2

Rate of stockturn =

COGS
Average Stock

Comment : On Average the stock is replaced ______ times in one year.

Average time in stock =

no of days @ weeks @mon this year Average Stock 12 mths

@
x 52 weeks
rate of stockturn
COGS
365 days

On average the stock is being sold in every ___days/weeks/months.

Average credit given (to debtors) =

Average debtors 12 mths

x 52 weeks
net sales
365 days

The company takes an average of _____days to collect from its debtors.

Average credit taken (to creditors ) =

Average creditors 12mths

x 52 weeks
net purchases
365 days

The company takes an average _____days to pay its creditors.

Ratios to assets liquidity

Working capital ratio = Current assets >2
current ratio
Current liabilities

Working capital ratio of _____ which is more/less than 2, indicates that the current liabilities are well/not cover by
the current asets.The business owns more/less current assets to pay off its short term liabilities.

Acid test ratio

cash+bank + debtors Current assetsstock
@
>1
liquid capital ratio =
current liabilities
Current liabilities
quick assets ratio
Acid test ratio of _____which is more/less than 1, indicates that the business will always/not have sufficient cash to
pay its immediate creditors.

Adjusted Acid test ratio =

Current assetsstock
Current liabilitiesoverdraft

Borrowing ratio / Capital gearing ratio =

Total borrowings
Net Worth

Low/high gearing company, ____% of the firm finance is provided by the proprietor.

Topic 5. Investment Appraisal

Payback Period
Payback period = year1 +

balance
x 12 months
cash flow for the year 2

**If the payback period is shorter than the maximum desirable payback period, accept the project
otherwise reject it.
Net Present Value (NPV)
Net Presect Value (NPV) =

Cash flow x discount factor

**If NPV > 0, i.e. Positive, accept the decision to invest

If NPV < 0, i.e. Negative, reject the decision to invest
If NPV = 0, it is indifferent whether to accept or reject the decision to invest

Internal Rate of Return (IRR)

Internal Rate of return (IRR) = r1 +
A=lower discount rate
B=higher discount rate
C=positive NPV at lower discount rate
D=negative NPV at higher discount rate

+ NPV
x (r 2r 1)
+ NPV (NPV )

@ A+

C
x ( B A)
CD

Accounting Rate of Return (ARR)/ Average Rate of Return

Average profit =

(returncost )
return
@
average cost
no . of years
no . of years
Average profit
Average investment

Average Rate of Return (ARR) =

**If the ARR is found to be higher than minimum standard ARR, accept the project otherwise reject the
project.

Topic 6. Bankruptcy
Formula
Assets as a fraction of liabilities =

Percentage =

assets
liabilities

assets
x 100
liabilities

Rate in $ (dividend)=

assetssecured creditorsexpenses
unsecured creditors

Assets realized = (rate in $ x unsecured creditors) + secured creditors expenses

Unsecured creditors = liabilities secured creditors
Paid unsecured creditors = assets secured creditors
Amount received by a creditor = amt owed x rate in $
Amount owed to a creditors =

amount received
rate$

Topic 7. Depreciation of business assets

Method of measuring depreciation
Straight-Line Method / equal installment method
Total depreciation = Cost Scrap Value
Annual Depreciation =

Cost Scrap value

Expected Life

Total written off (%) =

Total depreciation
x 100
Cost

Annual depreciation
x 100
Cost

Each year written off (%) =

Annual Depreciation
Total Depreciation

Rate of depreciation =

Book value @ scrap value = Cost Accumulated depreciation

NBV nScrap Value
x nNBV n
nn NBV n

Original Cost = NBVn +

Reducing balance Method / Diminishing balance method

Book value (S) = C(1 - r)n
S
(1r ) n

Cost (C) =

Rate (r) = 1 -

Year (n) =

S
S
@1
C
C

( )

Rate of Depreciation = 1
? ? )

1/n

log SC
log (1r )

Accumulated depreciation = cost scrap value

Annual depreciation = C(1 r)n-1 x r

Original Cost = NBVn

NBVS = NBVn X

NBV n
n

NBV s
NBV n

NBV s
NBV n

nNBV n

Topic 8. Index Number

Chain base index
Price relative =

P1
Po

Quantity relative =

x 100 @
Q1
Qo

P1
P0

x 100 @

Q1
Q0

3 Shift ^

Weight index =

P 1 Q x 100 @ WI
PoQ
W

Total Income = Price x Quantity

Total Income (I) =

Total income ( current )

Total income ( base )

Average (mean) Price =

***

Total income
Total quantity

means '' T ota l' ' , prepare thetable .

@ Total Income (I)=

Price relative x Quantity relative

100