Financial Formulas for Business Analysis

Financial Formulas

• Cash Flow Forecasts (E1)

  • Net cash flow: Total Cash Inflow − Total Cash Outflow
  • Closing balance: Opening Balance + Net Cash Flow

• Break-Even Analysis (E2)

  • Total revenue: Selling Price × Quantity Sold
  • Total costs: Fixed Costs + Total Variable Costs
  • Profit: Total Revenue − Total Costs
  • Total contribution: Sales Revenue − Total Variable Costs
  • Contribution (per unit): Selling Price − Variable Cost (per unit)
  • Profit (using contribution): Contribution per unit × Margin of Safety
  • Break-even output: Total Fixed Costs ÷ Unit Contribution
  • Margin of Safety: Actual Sales − Break-even Level of Output

• Statement of Comprehensive Income (F1)

  • Revenue: Unit Price × Quantity Sold
  • Gross profit: Sales Revenue − Cost of Goods Sold
  • Cost of goods sold: Opening Inventory + Purchases − Closing Inventory
  • Profit/loss for the year: Gross Profit − Expenses + Other Income
  • Net book value: Cost − Depreciation

• Statement of Financial Position (F2)

  • Net current assets: Current Assets − Current Liabilities
  • Net assets: Non-current Assets + Net Current Assets − Long-term Liabilities
  • Capital employed: Opening Capital + Profit for the Year − Less Drawings
  • Balance sheet equation: Net Assets = Capital Employed

• Measuring Profitability (F3)

  • Gross profit margin: (Gross Profit ÷ Revenue) × 100
  • Mark-up: (Gross Profit ÷ Cost of Sales) × 100
  • Profit margin: (Profit ÷ Revenue) × 100
  • Return on capital employed: (Profit ÷ Capital Employed) × 100

• Measuring Liquidity (F4)

  • Current ratio: Current Assets ÷ Current Liabilities
  • Liquid capital ratio: (Current Assets − Inventory) ÷ Current Liabilities
  • Trade receivable days: (Trade Receivables ÷ Credit Sales) × 365
  • Trade payable days: (Trade Payables ÷ Credit Purchases) × 365

• Measuring Efficiency (F5)

  • Inventory turnover: Average Inventory ÷ Cost of Sales × 365