Financial management made easy – The MBA finance cheat sheet

For all MBA’s who are finding it difficult to learn all those formulae for their financial management assignments, we’ve come up with a MBA finance cheat sheet for you. If you like what you see, show some love by sharing it on your social profiles.

Profitability

  • Return on capital employed

= (operating profit / share capital + reserves + non-current liabilities) x 100

  • Operating profit margin

= (operating profit / sales revenue) x 100

  • Operating profit

= sales revenue – operational costs

  • Gross profit margin

= (gross profit / sales revenue) x 100

  • Gross profit

= sales revenue – cost of sales

  • Return on ordinary shareholders’ funds

= (net profit after tax and preferential dividend / ordinary share capital and reserves) x 100

Efficiency

  • Average inventory turnover period*

= (average inventories held / cost of sales) x 365

  • Average settlement period for trade receivables*

= (average trade receivables / credit sales revenue) x 365

  • Average settlement period for trade payables*

= (average trade payables / credit purchases) x 365

  • Sales revenue to capital employed

= sales revenue / (share capital + reserves + non-current liabilities)

  • Sales revenue per employee

= sales revenue / number of employees

Liquidity

  • Current ratio

= current assets / current liabilities

  • Acid test

= current assets (excluding inventories) / current liabilities

  • Gearing ratio

= (long term liabilities / (share capital + reserves + long term liabilities)) x 100

  • Interest cover ratio

= operating profit / interest payable

Investment

  • Dividend pay-out ratio

= (dividends announced for year / earnings per year available for dividends) x 100

  • Dividend cover ratio

= (earnings per year available for dividends / dividends announced for year) x 100

  • Dividend yield

= ((dividend per year / (1 + ‘dividend tax credit’ rate of income tax) / market value per share) x 100

  • Earnings per year

= earnings available to ordinary shareholders / number of ordinary shares issued

  • Price/earnings ratio

= market value for share / earnings for share

Cost-volume-profit analysis

  • Break-even point

Total sales = total costs

  • Number of units sold at break-end point

= fixed cost / contribution per unit

  • Number of units sold to achieve target profit

= (fixed cost + target profit) / contribution per unit

  • Contribution margin ratio

= (contribution/sales revenue) x 100

  • Contribution

= sales revenue per unit – variable cost per unit

  • Margin of safety

= actual sakes – break-even sales

Investment decisions

  • Payback period

= length of time it takes for the initial investment to be repaid from resulting cash inflows

  • Accounting rate of return

= (average annual profit / average investment) x 100

  • Average annual profit

= (total project revenue – depreciation) / lifetime of project in years

  • Depreciation

= initial cost – disposal value

  • Average investment

= (initial investment + disposal value) / 2

  • Present value

= future cash flow x (1 / discount factor)

  • Internal rate of return

= the discount rate at which future cash flows have a net present value of zero

Managing working capital

  • Working capital

= current assets – current liabilities

  • Current assets

= inventories + trade receivables + cash

  • Current liabilities

= trade payables + bank overdrafts

  • Operating cash cycle

= average inventories turnover period* + average settlement period for trade receivables* – average settlement period for trade payables*

  • Average inventory turnover period*

= (average inventories held / cost of sales) x 365

  • Average settlement period for trade receivables*

= (average trade receivables / credit sales revenue) x 365

  • Average settlement period for trade payables*

= (average trade payables / credit purchases) x 365

  • Lead time for orders (in weeks)

= annual demand for component / number of weeks in a year

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