Formula Side

• Critical Path

  • help you work out the quickest time you can do tasks while completing others
  • +focus on it if found out and use the float for support - efficiency higher - waste down
  • +know critical path to introduce JIT - cash flow higher
  • +suits delegation
  • -time /cost of creation
  • -estimates if wrong mess up business plan
  • -obsession with CPA could lead to lower qualituy etc
• Acid Test Ratio 


  Current assets e.g cash debtors - inventory / current liabilities e.g creditors overdraft

  Target between 1.5:1 to 1:1

  measures how quick you can cover current liabilities, less then 1 shows you can’t

  should be higher if business has low stock turnover and no negotiation power over suppliers
• Gearing Ratio


  Non current liabilities /capital employed X 100

  capital employed = total equity + non current liabilities

  higher number e.g 50%+ more sensitive to interest rates increasing e.g rising rent money - profits go down

  25%less is to low

  25%-50% acceptable gearing
• Moving Averaged 


  Helps remove major fluctuations which could make predictions more accurate
• Payback

  Amount needed to pay back left /total cash flow that year X 12

  +simple, easy and easy to understand

  +inform managers of speed project will be be paid back- sales forecasting

  -doesn’t account for time value money

  -focused on short term and doesn’t look at overall return
• ARR

  (total return/no years of project)/intial investment cost x 100

  +long term planning

  +easy to compare to other projects

  share

  +shsreholder friendly

  -doesnd account for NPV

  -assumes equal annual profits
• NPV

  each year expected return X discount factor THEN add them all up

  +time value of money

  +clear decision criteria - see if they should accept or reject project

  -discounr factor subjective

  -only as good as The forecast of inflows