CPA BEC Formulas Flashcards
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Questions and Answers

What is the Weighted Average Cost of Capital (WACC)?

  • Interest Payments / Total Capital
  • (Cost of Equity x % Equity in Cap Structure) + (Weighted Average Cost of Debt x % of Debt in Cap Structure) (correct)
  • Total Capital / Total Debt
  • Cost of Equity + Cost of Debt

What is the formula for the Weighted Average Cost of Debt?

Effective Annual Interest Payments / Debt Outstanding

What does the After Tax Cost of Debt formula represent?

Pretax Cost of Debt x (1 - Tax Rate)

What is the formula for the Cost of Preferred Stock?

<p>Preferred Stock Dividends / Net Proceeds of Preferred Stock</p> Signup and view all the answers

How is CAPM (Cost of Retained Earnings) calculated?

<p>Risk-Free Rate + (Beta Coefficient (Market Return - Risk-Free Rate))</p> Signup and view all the answers

What is DCF?

<p>Expected Dividend at the end of One Year / Current Market Value of the Outstanding Common Stock</p> Signup and view all the answers

What does BYRP (Cost of Retained Earnings) stand for?

<p>Pretax Cost of LT-Debt + Market Risk Premium</p> Signup and view all the answers

What is the Growth Rate formula?

<p>Retention Ratio x Return on Investment</p> Signup and view all the answers

What is the formula for Return on Investment?

<p>Net Income / AVG Invested Capital</p> Signup and view all the answers

How is Return on Assets calculated?

<p>Net Income / Assets</p> Signup and view all the answers

What does Return on Equity (ROE) indicate?

<p>Net Income / Shareholders Equity</p> Signup and view all the answers

What is the Total Debt to Capital Ratio?

<p>Total Debt / Total Capital (liabilities + equity)</p> Signup and view all the answers

What does the Debt to Equity Ratio represent?

<p>Total Debt / Total Equity</p> Signup and view all the answers

How is the Times Interest Earned Ratio calculated?

<p>EBIT / Interest Expense</p> Signup and view all the answers

What is the Current Ratio formula?

<p>Current Assets / Current Liabilities</p> Signup and view all the answers

What is the Quick Ratio formula?

<p>Cash + Marketable Securities + Receivables / Current Liabilities</p> Signup and view all the answers

How is the Cash Ratio calculated?

<p>Cash + Cash Equivalents / Current Liabilities</p> Signup and view all the answers

What does Cash Conversion Cycle measure?

<p>Inv Conv. Period + Rec Conv. Period - Payable Deferral Period</p> Signup and view all the answers

What is the Inventory Conversion Period formula?

<p>365 / Inv. Turnover</p> Signup and view all the answers

What does the Inventory Turnover formula represent?

<p>COGS / Average Inventory</p> Signup and view all the answers

How is the Receivable Conversion Period calculated?

<p>365 / AR Turnover</p> Signup and view all the answers

What is the formula for AR Turnover?

<p>Credit Sales / Average Receivables</p> Signup and view all the answers

How is the Payable Deferral Period calculated?

<p>365 / AP Turnover</p> Signup and view all the answers

What is the AP Turnover formula?

<p>COGS / Average AP</p> Signup and view all the answers

What does Working Capital Turnover represent?

<p>Sales / Average Working Capital</p> Signup and view all the answers

How is Working Capital calculated?

<p>Current Assets - Current Liabilities</p> Signup and view all the answers

What is the formula for Reorder Point?

<p>Safety Stock + (Lead Time x Sales During Lead Time)</p> Signup and view all the answers

What is Economic Order Quantity (EOQ)?

<p>√(2(Annual Sales)(Cost Per PO) )/(Annual Carrying Cost Per Unit)</p> Signup and view all the answers

What does the APR of Quick PMT Discount formula represent?

<p>(360/Pay Period - Discount Period) x (Discount / 100 - Discount Amt)</p> Signup and view all the answers

What is Days Sales Outstanding?

<p>(Avg.AR / Credit Sales) x # of Days in Period</p> Signup and view all the answers

How is the Present Value of Perpetuity calculated?

<p>Dividend / Required Return</p> Signup and view all the answers

What does the Price to Earnings Ratio represent?

<p>Stock Price Today / EPS Expected in One Year</p> Signup and view all the answers

How do you calculate the Trailing P/E Ratio?

<p>Stock Price Today / EPS for Past Year</p> Signup and view all the answers

What is the PEG Ratio formula?

<p>(Stock Price Today / Expected EPS) / Growth Rate</p> Signup and view all the answers

What is Valuing Equity formula?

<p>Stock Price Today/Growth x Expected EPS End of 1 Year x Growth</p> Signup and view all the answers

What does the Price to Sales Ratio indicate?

<p>Stock Price Today / Expected Sales in One Year</p> Signup and view all the answers

How is Valuing Equity with Price to Sales calculated?

<p>Price to Sales x Expected Sales in One Year</p> Signup and view all the answers

What is the Price to Cash Flow Ratio?

<p>Stock Price Today / Expected Cash Flow in One Year</p> Signup and view all the answers

How do you calculate the Price to Book Value?

<p>Stock Price Today / Book Value of Common Stock</p> Signup and view all the answers

What does the Profitability Index measure?

<p>PV of Net Future Cash In-Flow / PV of Net Initial Investment</p> Signup and view all the answers

What is the formula for PV of 1$?

<p>FV / (1 + Interest Rate) ^ # years</p> Signup and view all the answers

How is PV of Annuity calculated?

<p>PMT x (1-1/(1+R)^n)/r</p> Signup and view all the answers

What does Prime Cost represent?

<p>DL + DM</p> Signup and view all the answers

What is Conversion Cost?

<p>DL + MO</p> Signup and view all the answers

How is Overhead Rate calculated?

<p>Budgeted OH / Cost Driver</p> Signup and view all the answers

What does Applied OH refer to?

<p>Actual Cost Driver / OH Rate</p> Signup and view all the answers

What is the formula for Weighted Average EQ Units?

<p>Beginning Cost + Current Cost / Equivalent Units</p> Signup and view all the answers

How do you calculate FIFO EQ Units?

<p>Current Cost / Equivalent Units</p> Signup and view all the answers

What does the Return on Investment % represent?

<p>Income / Sales</p> Signup and view all the answers

What is Investment Turnover?

<p>Sales / Avg. Invested Capital</p> Signup and view all the answers

How is Return on Assets calculated?

<p>Net Income / Average Total Assets</p> Signup and view all the answers

What does Return on Equity represent?

<p>Net Income / Equity</p> Signup and view all the answers

How is Net Profit Margin calculated?

<p>Net Income / Sales</p> Signup and view all the answers

What does Asset Turnover measure?

<p>Sales / Assets</p> Signup and view all the answers

What is Financial Leverage?

<p>Assets / Equity</p> Signup and view all the answers

What does Dupont ROE represent?

<p>Net Profit Margin x Asset Turnover x Financial Leverage</p> Signup and view all the answers

What is Tax Burden?

<p>Net Income / Pre-Tax Income</p> Signup and view all the answers

What does Interest Burden indicate?

<p>Pretax Income / EBIT</p> Signup and view all the answers

How is EBIT Margin calculated?

<p>EBIT / Sales</p> Signup and view all the answers

What is the Extended Dupont ROE Formula?

<p>Tax Burden x Int. Burden x EBIT Margin x Asset Turnover x Financial Leverage</p> Signup and view all the answers

What does Residual Income indicate?

<p>Net Income - Required Return</p> Signup and view all the answers

What is Required Return?

<p>Net Book Value x Hurdle Rate</p> Signup and view all the answers

How is Economic Value Added calculated?

<p>Net Operating Profit After Tax - Required Return (Investment x WACC)</p> Signup and view all the answers

What does Return on Sales measure?

<p>NI / Sales</p> Signup and view all the answers

How is Real GDP calculated?

<p>Nominal GDP / GDP Deflator x 100</p> Signup and view all the answers

What does the Multiplier Effect represent?

<p>1 / (1-Marginal Propensity to Consume)</p> Signup and view all the answers

How is the Consumer Price Index calculated?

<p>(Current Cost of Market Basket / Base Year Cost of Market Basket) x 100</p> Signup and view all the answers

What does Change in Real GDP represent?

<p>Multiplier x Change In Spending</p> Signup and view all the answers

What is the Real Interest Rate formula?

<p>Nominal Interest Rate - Inflation</p> Signup and view all the answers

How is Price Elasticity of Demand calculated?

<p>% Change in QTY Demanded / % Change in Price</p> Signup and view all the answers

What is Price Elasticity of Supply?

<p>Change in QTY Supplied / % Change in Price</p> Signup and view all the answers

What does Cross Elasticity of Demand indicate?

<p>% Change in Number of Units Demanded / % Change in Price</p> Signup and view all the answers

How is Income Elasticity of Demand calculated?

<p>% Change in # of Units of x Demanded / % Change In Income</p> Signup and view all the answers

What is the Absorption Approach to accounting?

<p>Revenue - Less COGS - Gross Margin - Less Operating Expense = Net Income</p> Signup and view all the answers

What does the Contribution Approach show?

<p>Revenue - Less Variable Cost - Contribution Margin - Less Fixed Cost = Net Income</p> Signup and view all the answers

What is the Unit Contribution Margin?

<p>Sales Price - Variable Costs</p> Signup and view all the answers

What does the CM Ratio represent?

<p>Contribution Margin / Revenue</p> Signup and view all the answers

How do you determine the Difference Between Variable and Absorption costing?

<p>Step 1: Compute Fix Cost Per Unit (Fix OH / Fix Cost PU); Step 2: Compute Change in Income (Change in Inv Units x Fixed Cost); Step 3: Determine Inventory Change</p> Signup and view all the answers

What is the Break Even Per Unit formula?

<p>Total Fixed Cost / CM Per Unit</p> Signup and view all the answers

What is the Breakeven Point in Dollars?

<p>Unit Price x Breakeven Point (in Units) or Total Fixed Cost / Contribution Margin %</p> Signup and view all the answers

How do you calculate Sales (Units) Needed to Break Even?

<p>(Fixed Cost + Pre-Tax Profit) / CM per Unit</p> Signup and view all the answers

What is the Sales Dollar BE Point for Target Profit?

<p>Variable Cost + Fixed Cost + Pretax Profit</p> Signup and view all the answers

How is the Sales Price Per Unit for Target Profit calculated?

<p>(Fixed Cost + Variable Cost + Pretax Profit) / # of units sold</p> Signup and view all the answers

What does Margin of Safety indicate?

<p>Total Sales - Breakeven sales</p> Signup and view all the answers

How is Margin of Safety % calculated?

<p>Margin of Safety in Dollars / Total Sales</p> Signup and view all the answers

What is the Target Cost formula?

<p>Market Price - Minus Required Profit</p> Signup and view all the answers

How is Operating Cash Flow calculated?

<p>Cash Flow From Operations / Current Liabilities</p> Signup and view all the answers

What is Net Profit Margin?

<p>Net Income / Sales</p> Signup and view all the answers

How is Operating Margin calculated?

<p>Operating Income / Sales</p> Signup and view all the answers

What is Budgeted Production?

<p>Budgeted Sales + Desired Ending Inventory - Beg.Inventory</p> Signup and view all the answers

What is Standard Direct Cost?

<p>Standard Price x Standard Qty</p> Signup and view all the answers

How is Standard Indirect Cost calculated?

<p>Standard Application Rate x Standard Qty</p> Signup and view all the answers

What does DM Price Variance indicate?

<p>Actual QTY Purchased x (Actual Price - Standard Price)</p> Signup and view all the answers

What is DM Qty Variance?

<p>Standard Qty Purchased x (Actual Qty Used - Standard Qty Used)</p> Signup and view all the answers

What does DL Rate Variance indicate?

<p>Actual Hours Worked x (Actual Rate - Standard Rate)</p> Signup and view all the answers

What is DL Efficiency Rate?

<p>Standard Rate x (Actual Hours Worked - Standard Hours Allowed)</p> Signup and view all the answers

What does VOH Rate (Spending) Variance indicate?

<p>Actual Hours x (Actual Rate - Standard Rate)</p> Signup and view all the answers

What is VOH Efficiency Variance?

<p>Standard Rate x (Actual Hours - Standard Hours)</p> Signup and view all the answers

Study Notes

Financial Metrics and Formulas

  • Weighted Average Cost of Capital (WACC): Formula = (Cost of Equity x % Equity) + (Weighted Avg. Cost of Debt x % Debt).
  • Weighted Average Cost of Debt: Effective Annual Interest Payments / Total Debt Outstanding.
  • After Tax Cost of Debt: Pretax Cost of Debt adjusted for tax = Pretax Cost of Debt x (1 - Tax Rate).
  • Cost of Preferred Stock: Preferred Stock Dividends divided by Net Proceeds from Preferred Stock.

Cost and Return Calculations

  • CAPM (Cost of Retained Earnings): Formula = Risk-Free Rate + (Beta x (Market Return - Risk-Free Rate)).
  • Discounted Cash Flow (DCF): Formula = Expected Dividend at Year End / Current Market Value of Common Stock.
  • Growth Rate: Calculated as Retention Ratio x Return on Investment.

Profitability Ratios

  • Return on Investment (ROI): Net Income divided by Average Invested Capital.
  • Return on Assets (ROA): Net Income divided by Total Assets.
  • Return on Equity (ROE): Net Income divided by Shareholders' Equity.

Leverage and Coverage Ratios

  • Total Debt to Capital Ratio: Total Debt divided by Total Capital (liabilities + equity).
  • Debt to Equity Ratio: Total Debt divided by Total Equity.
  • Times Interest Earned Ratio: Earnings Before Interest and Taxes (EBIT) divided by Interest Expense.

Liquidity Ratios

  • Current Ratio: Current Assets divided by Current Liabilities.
  • Quick Ratio: (Cash + Marketable Securities + Receivables) divided by Current Liabilities.
  • Cash Ratio: Cash plus Cash Equivalents divided by Current Liabilities.

Operating and Efficiency Metrics

  • Cash Conversion Cycle: Inventory Conversion Period + Receivable Conversion Period - Payable Deferral Period.
  • Inventory Conversion Period: 365 days divided by Inventory Turnover.
  • Receivable Conversion Period: 365 days divided by Accounts Receivable Turnover.
  • Payable Deferral Period: 365 days divided by Accounts Payable Turnover.

Sales Metrics

  • Working Capital Turnover: Sales divided by Average Working Capital.
  • Return on Sales: Net Income divided by Sales.
  • Net Profit Margin: Net Income divided by Sales.

Breakeven Analysis

  • Break Even Per Unit: Total Fixed Costs divided by Contribution Margin per Unit.
  • Breakeven Point in Dollars: Total Fixed Costs divided by Contribution Margin % or Unit Price x Breakeven Units.
  • Margin of Safety: Total Sales minus Breakeven Sales.

Investment Valuations

  • Price to Earnings Ratio (P/E): Stock Price divided by Expected EPS.
  • Price to Book Value: Stock Price divided by Book Value of Common Stock.
  • Price to Cash Flow Ratio: Stock Price divided by Expected Cash Flow in One Year.

Advanced Valuation Concepts

  • Economic Value Added (EVA): Net Operating Profit After Tax minus Required Return (investment x WACC).
  • Residual Income: Net Income minus Required Return.
  • Dupont Analysis of ROE: Breaks down into Net Profit Margin, Asset Turnover, and Financial Leverage.

Variance Analysis

  • Direct Material Price Variance: Actual Quantity Purchased x (Actual Price - Standard Price).
  • Direct Labor Rate Variance: Actual Hours Worked x (Actual Rate - Standard Rate).
  • Variable Overhead Rate Variance: Actual Hours x (Actual Rate - Standard Rate).

Production and Cost Analysis

  • Budgeted Production: Budgeted Sales plus Desired Ending Inventory minus Beginning Inventory.
  • Standard Direct Cost: Standard Price multiplied by Standard Quantity.
  • Standard Indirect Cost: Standard Application Rate multiplied by Standard Quantity.

Economic Indicators

  • Real GDP: Nominal GDP divided by GDP Deflator x 100.
  • Consumer Price Index (CPI): (Current Cost of Market Basket / Base Year Cost) x 100.
  • Real Interest Rate: Nominal Interest Rate minus Inflation.

Economic Formulas

  • Multiplier Effect: 1 divided by (1 - Marginal Propensity to Consume).
  • Price Elasticity of Demand: % Change in Quantity Demanded divided by % Change in Price.
  • Cross Elasticity of Demand: % Change in Quantity Demanded of Good A divided by % Change in Price of Good B.

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Test your knowledge of key formulas for the CPA BEC exam with these flashcards. Each card provides a critical financial term along with its definition, helping you to master essential concepts. Perfect for quick review and study before the exam.

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