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Inventory turnover = cost of goods sold / average inventory balance

Average sale period = 365 days / Inventory turnover

Return on assets = Net income + (interest expense * (1 – tax rate)) / average total
assets

Working capital = current assets – current liabilities

Current ratio = current assets / current liabilities

Acid test ratio = (current assets – inventory) / current liabilities

Accounts receivable turnover = sales on account / average accounts receivable balance

Average collection period = 365 days / accounts receivable turnover

Fixed cost per unit = Fixed cost / no. of units Variable cost per unit = Variable
costs / no. of units

Fixed cost ratio = fixed costs / sales Variable cost ratio = Variable costs /
sales

CM = Sales – Variable costs CMu = SP – VCu Sales = SP ×

Activity level

Breakeven points (units) = Fixed costs / CMu = Fixed costs / (SP – VCu)

Breakeven points (revenue) = Fixed costs / CM ratio = Fixed costs / (CM / sales) = Fixed
costs / (CMu / SP)

Quantity to achieve profit = (Fixed costs + target profit) / CMu = (Fixed costs + target
profit) / (SP-VCu)

Revenue to achieve profit = (Fixed costs + target profit)/CM ratio = (Fixed costs + target
profit)/[(SP-VCu)/SP]

ROI = Margin × Turnover ROI = Net operating income / average

total assets

ROI = (NI / Sales) × (Sales / Average operating assets)

RI = N.I. – Minimum required return

Income statement using contribution margin Traditional format of

income statement
Sales Sales
-Variable costs - Cost of goods sold
= Contribution margin = Gross margin
- Fixed costs - selling and other expenses
= Net Income (Loss) = Net income (Loss)

Margin of safety (in dollars) = (Target sales – breakeven sales) / target sales

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Y = a + bx
Y = mixed costs
a = fixed cost
b = variable cost per unit
x = no. of units

b = (high cost – low cost) / (high activity – low activity)

Net income xx
Cash flow from operating activities:-
+ Depreciation xx
- Increase in current assets (xx)
+ Increase in current liabilities xx
- Gain on sale of fixed assets (xx) xx

Cash flow from investing activities:-

- Increase in fixed assets (xx)
+ Decrease in fixed assets xx
- Long term investment in securities (xx)
xx

Cash flow from financing activities:-

+ Issue shares xx
+ Issue bonds xx
+ Increase in long term liabilities xx xx
= Increase in cash xx
+ Cash at beginning xx
= cash ending balance xx

Free cash flow = Cash provided by operating activities – Capital

expenditures – Cash dividends

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Fixed cost per unit = Fixed cost / no. of units Variable cost per unit = Variable
costs / no. of units

Variable cost ratio = Variable costs / sales

CM = Sales – Variable costs CMu = SP – VCu Sales = SP ×

quantity

Special order Reject order Accept Net income

order Increase
(Decrease)
Revenue Zero XX XX
(-) Costs Zero XX XX
= Net income Zero XX XX

sales budget
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Product A:
Sales (units) units units units units units
Price x SP x SP x SP x SP x SP
Sales ($) Revenue Revenue Revenue Revenue Revenue

Budget production
July August September
Budgeted sales XX XX XX
+ Required ending inventory XX XX XX
(-) Beginning inventory (XX) (XX) (XX)
Budgeted production XX XX XX

Budget Purchase
July August September
Production in units XX XX XX
*Raw material per unit XX XX XX
=Production needs in lbs.***
XX XX XX

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+ Targeted ending inventory in lbs. *

XX XX XX
(-) Beginning inventory in lbs. (XX) (XX) (XX)
= Purchases needed in lbs. XX XX XX

D.L. Budget
July August September
Production in units XX XX XX
*D.L.H. per unit XX XX XX
=Total Direct labor hours XX XX XX
*D.L. cost per hour XX XX XX
= Cost of D.L.H. XX XX XX

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