Business formulas

• Absenteeism


  (Number of days of employee absence/total number of workdays) x 100
• Acid test ratio


  Liquid assets/current liabilities
• Accounting rate of return (ARR)


  (Average annual profit/average investment) x 100
• Annual depreciation


  (Original cost of asset - expected residual value)/expected useful life of asset (years)
• Average inventory 


  (Inventory at the start of the year + inventory at the end of the year)/2
• Average investment


  (Initial capital cost + residual capital value)/2
• Capital employed (%)


  Non current liabilities + shareholders' equity
• Shareholders' equity


  Issued shares + reserves
• Cost of sales 


  (Opening inventories + purchases) - closing inventories
• Current ratio


  Current assets/current liabilities
• Dividend cover ratio


  Profit for the year/annual dividends
• Dividend per share


  Total annual dividends/total number of issued shares
• Dividend yield ratio (%)


  (Dividend per share/market share price) x 100
• Earnings per share (EPS)


  Profit for the year/number of shares issued
• Free float


  EST (next activity) - duration - EST (this activity)
• Gearing ratio (%)


  (Non current liabilities/capital employed) x 100
• Gross profit


  Revenue - cost of sales
• Gross profit margin ratio (%)


  (Gross profit/revenue) x 100
• Income elasticity of demand (IED)


  % change in demand/% change in consumer income
• Liquid assets


  Current assets - inventories
• Market share (%)


  (Sales of the business/total market sales) x 100
• Net book value


  Original cost - accumulated depreciation
• Net realisable value 


  Amount for which existing inventory can be sold - cost of selling it
• Operating profit margin ratio (%)


  (Operating profit/revenue) x 100
• Payback period (additional months)


  (Additional cash flow needed/annual cash flow) x 12
• Price/earnings (P/E) ratio


  Market share price/earnings per share
• Price elasticity of demand (PED)


  % change in demand/% change in price
• Rate of inventory turnover


  Cost of sales/average inventory
• Reserves 


  Shareholders' equity - share capital
• Return on capital employed (ROCE)


  (Operating profit/capital employed) x 100
• Total float


  LFT - duration - EST
• Total revenue


  Selling price x quantity sold
• Trade payables turnover (days)


  (Trade payables/credit purchases) x 365
• Trade receivables turnover (days) 


  (Trade receivables/credit sales) x 365
• Working capital


  Current assets - current liabilities