Calculations and formulas

• Cost of sales is calculated: (opening inventories + purchases) - closing inventories.
• Revenue is calculated: Selling price x quantity sold.
• Gross profit is calculated: revenue - cost of sales.
• The acronym for cost of sales is: CoS.
• Gross profit is calculated: revenue - cost of sales.
• The acronym for cost of sales is: CoS
• Profit before tax is calculated = interest costs - profit from operations.
• Profit from operations = gross profit - overhead costs.
• Profit for the year = corporation tax - profit before tax
• Retained profit = profit for the year - dividends.
• Working capital = current assets - current liabilities.
• Reserves = shareholders equity - share capital.
• Net realisable value = the amount for which the existing inventory can be sold - the cost of the inventory.
• The annual depreciation is calculated by the formula:

  The original cost of asset - expected residual value

  ---------------------------------------------

  The expected useful life of the asset (years)
• A profit and loss statement shows how much profit a company made from its business operations, and how it is distributed between dividends to shareholders and retained earnings.
• The Statement of financial position states the net worth and equity of the company.
• Current assets are assets that are expected to be converted into cash within one year.
• Non-current assets are assets that are to be used for more than one year.
• Current assets include cash, trade recievables, and inventories.
• Non-current assets include machinery, land, vehicles, etc.
• Parts of a statement of profit and loss include:

  • Trading account
  • Section of profit and loss
  • Appropriation account
• Intangible assets are Items of value to the business that cannot be held or possessed. This includes things like patents, copyrights, and trademarks, and goodwill.
• Current ratio = current assets

  ----------------

  current liabilities
• Liquidity refers to the ability of the business to pay back its short term loans.
• Acid test ratio = liquid assets

  -------------

  current liabilities
• Acid test ratios compare a business's liquid assets to its current liabilities
• Gross profit margin ratio = gross profit

  ------------- x 100

  revenue
• Forecasted net cash flow = forecasted cash inflows - forecasted cash outflows.
• Liquid assets = current assets - inventories
• Operating profit ratio = Operating profit (profit from operations) / Total revenue x 100
• Return on capital employed ratio= operating profit/capital employed x 100
• Capital employed= non-current liabilities + shareholder's equity
• In case you are not given the value of current assets, you must look for and ADD cash, trade receivables, and inventory.
• Current liabilities are found by: adding together overdrafts, trade payables, and acquired expenses like (dividends, tax liability, etc).
• Inventory turnover= cost of sales

  -------------

  average inventory
• Average inventory= Inventory at the start of the year+ inventory at the end of the year/2
• Trade receivables turnover= trade receivables

  ------------------ x 365

  credit sales
• Trade payables turnover= trade payables

  ----------------x 365

  credit purchases
• Gearing ratio= non-current liabilities

  --------------------- x 100

  capital employed
• Dividend yield ratio= dividend per share

  ------------------- x 100

  market share price