CPA BEC Formulas Flashcards

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?

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

How is CAPM (Cost of Retained Earnings) calculated?

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

What is DCF?

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

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

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

What is the Growth Rate formula?

Retention Ratio x Return on Investment Signup and view all the answers

What is the formula for Return on Investment?

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

How is Return on Assets calculated?

Net Income / Assets Signup and view all the answers

What does Return on Equity (ROE) indicate?

Net Income / Shareholders Equity Signup and view all the answers

What is the Total Debt to Capital Ratio?

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

What does the Debt to Equity Ratio represent?

Total Debt / Total Equity Signup and view all the answers

How is the Times Interest Earned Ratio calculated?

EBIT / Interest Expense Signup and view all the answers

What is the Current Ratio formula?

Current Assets / Current Liabilities Signup and view all the answers

What is the Quick Ratio formula?

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

How is the Cash Ratio calculated?

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

What does Cash Conversion Cycle measure?

Inv Conv. Period + Rec Conv. Period - Payable Deferral Period Signup and view all the answers

What is the Inventory Conversion Period formula?

365 / Inv. Turnover Signup and view all the answers

What does the Inventory Turnover formula represent?

COGS / Average Inventory Signup and view all the answers

How is the Receivable Conversion Period calculated?

365 / AR Turnover Signup and view all the answers

What is the formula for AR Turnover?

Credit Sales / Average Receivables Signup and view all the answers

How is the Payable Deferral Period calculated?

365 / AP Turnover Signup and view all the answers

What is the AP Turnover formula?

COGS / Average AP Signup and view all the answers

What does Working Capital Turnover represent?

Sales / Average Working Capital Signup and view all the answers

How is Working Capital calculated?

Current Assets - Current Liabilities Signup and view all the answers

What is the formula for Reorder Point?

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

What is Economic Order Quantity (EOQ)?

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

What does the APR of Quick PMT Discount formula represent?

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

What is Days Sales Outstanding?

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

How is the Present Value of Perpetuity calculated?

Dividend / Required Return Signup and view all the answers

What does the Price to Earnings Ratio represent?

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

How do you calculate the Trailing P/E Ratio?

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

What is the PEG Ratio formula?

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

What is Valuing Equity formula?

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

What does the Price to Sales Ratio indicate?

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

How is Valuing Equity with Price to Sales calculated?

Price to Sales x Expected Sales in One Year Signup and view all the answers

What is the Price to Cash Flow Ratio?

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

How do you calculate the Price to Book Value?

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

What does the Profitability Index measure?

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

What is the formula for PV of 1$?

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

How is PV of Annuity calculated?

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

What does Prime Cost represent?

DL + DM Signup and view all the answers

What is Conversion Cost?

DL + MO Signup and view all the answers

How is Overhead Rate calculated?

Budgeted OH / Cost Driver Signup and view all the answers

What does Applied OH refer to?

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

What is the formula for Weighted Average EQ Units?

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

How do you calculate FIFO EQ Units?

Current Cost / Equivalent Units Signup and view all the answers

What does the Return on Investment % represent?

Income / Sales Signup and view all the answers

What is Investment Turnover?

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

How is Return on Assets calculated?

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

What does Return on Equity represent?

Net Income / Equity Signup and view all the answers

How is Net Profit Margin calculated?

Net Income / Sales Signup and view all the answers

What does Asset Turnover measure?

Sales / Assets Signup and view all the answers

What is Financial Leverage?

Assets / Equity Signup and view all the answers

What does Dupont ROE represent?

Net Profit Margin x Asset Turnover x Financial Leverage Signup and view all the answers

What is Tax Burden?

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

What does Interest Burden indicate?

Pretax Income / EBIT Signup and view all the answers

How is EBIT Margin calculated?

EBIT / Sales Signup and view all the answers

What is the Extended Dupont ROE Formula?

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

What does Residual Income indicate?

Net Income - Required Return Signup and view all the answers

What is Required Return?

Net Book Value x Hurdle Rate Signup and view all the answers

How is Economic Value Added calculated?

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

What does Return on Sales measure?

NI / Sales Signup and view all the answers

How is Real GDP calculated?

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

What does the Multiplier Effect represent?

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

How is the Consumer Price Index calculated?

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

What does Change in Real GDP represent?

Multiplier x Change In Spending Signup and view all the answers

What is the Real Interest Rate formula?

Nominal Interest Rate - Inflation Signup and view all the answers

How is Price Elasticity of Demand calculated?

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

What is Price Elasticity of Supply?

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

What does Cross Elasticity of Demand indicate?

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

How is Income Elasticity of Demand calculated?

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

What is the Absorption Approach to accounting?

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

What does the Contribution Approach show?

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

What is the Unit Contribution Margin?

Sales Price - Variable Costs Signup and view all the answers

What does the CM Ratio represent?

Contribution Margin / Revenue Signup and view all the answers

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

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 Signup and view all the answers

What is the Break Even Per Unit formula?

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

What is the Breakeven Point in Dollars?

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

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

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

What is the Sales Dollar BE Point for Target Profit?

Variable Cost + Fixed Cost + Pretax Profit Signup and view all the answers

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

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

What does Margin of Safety indicate?

Total Sales - Breakeven sales Signup and view all the answers

How is Margin of Safety % calculated?

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

What is the Target Cost formula?

Market Price - Minus Required Profit Signup and view all the answers

How is Operating Cash Flow calculated?

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

What is Net Profit Margin?

Net Income / Sales Signup and view all the answers

How is Operating Margin calculated?

Operating Income / Sales Signup and view all the answers

What is Budgeted Production?

Budgeted Sales + Desired Ending Inventory - Beg.Inventory Signup and view all the answers

What is Standard Direct Cost?

Standard Price x Standard Qty Signup and view all the answers

How is Standard Indirect Cost calculated?

Standard Application Rate x Standard Qty Signup and view all the answers

What does DM Price Variance indicate?

Actual QTY Purchased x (Actual Price - Standard Price) Signup and view all the answers

What is DM Qty Variance?

Standard Qty Purchased x (Actual Qty Used - Standard Qty Used) Signup and view all the answers

What does DL Rate Variance indicate?

Actual Hours Worked x (Actual Rate - Standard Rate) Signup and view all the answers

What is DL Efficiency Rate?

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

What does VOH Rate (Spending) Variance indicate?

Actual Hours x (Actual Rate - Standard Rate) Signup and view all the answers

What is VOH Efficiency Variance?

Standard Rate x (Actual Hours - Standard Hours) 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.