ACCOUNTING FORMULAE Reducing Balance Depreciation - The annual charge is based on the formula:

1n Scrap Value Cost

Gearing (Leverage) Relationship between shareholder funding (owners equity) and loans
Gearing =
Long Term Debt Long Term Debt Or Gearing = Debt + Equity Total Assets

Return On Equity
ROE = Available To Equity Total Equity

In years of healthy profits, shareholders receive a better return on their money in a highly geared company In years when profits dip, the heavy burden of debt causes highly geared companys shareholders to suffer more Liquidity Ratios are designed to measure the companies ability to meet its maturing short-term obligations and ensuring the short run survival of the company. Current Ratio
Current Ratio = Current Assets Current Liabilitie s

(2 times current ratio indicates a sound financial position) The Quick Ratio (Acid Test) removes inventory from the calculation
Quick Ratio = Current Assets Inventory Current Liabilites

(1 times quick ratio indicates a sound financial position)

Profitability Ratios designed to measure managements overall effectiveness: does the company control expenses and earn a reasonable return on funds committed? Gross Profit Margin
Gross Profit Sales

Gross Profit Margin % =

Profit Margin
Profit Margin % = Profit Before Interest And Taxes Sales

Return On Total Assets

Return On Total Assets % = Profit Before Interest And Taxes Total Assets

Return On Specific Assets

Profit Before Interest And Taxes Inventory

Return On Inventory % =

Return On Capital Employed (Total Assets Current Liabilities)

Profit Before Interest And Taxes Capital Employed

Return On Capital Employed % =

Return on Owners Equity

Profit Attributab le To Shareholde rs Capital Employed

Return On Owners Equity % =

Capital Structure Ratios A Those that examine the asset structure of the company B Those that analyse the financing arrangements of the companys total assets, in particular the extent to which the company relies on debt. Fixed To Current Asset Ratio
Fixed To Current Asset Ratio% = Fixed Assets Current Assets

Debt Ratio
Debt Ratio % = Total Debt Total Assets

Debt/Equity Ratio
Debt Equity Ratio % = Total Debt Total Equity

Time Interest Earned

Times Interest Earned = Profit Before Tax + Interst Charges Interest Charges

Efficiency Ratios give an indication of how effectively a company has been managing its assets. Inventory Turnover
Inventory Turnover = Sales Inventory

Average Collection Period

Average Collection Period (days) = Debtors Sales Per Day

Fixed Assets Turnover

Fixed Asset Turnover (times) = Sales Fixed Assets

Stock Market Ratios Earnings Per Share

EPS = Net Profit For The Financial Year Number Of Ordinary Shares In Issue

Price/Earnings Ratio (PE)

PE = Market Price EPS
Dividend Per Share Market Value Per Share

Dividend Yield
Dividend Yield % =

Gross Dividend Yield % =

Dividend Per Share (100/100% - Tax Rate%) Market Value Per Share

Dividend Cover
Dividend Cover (times) = Net Profit Of The Year Dividend Payout

Break Even Analysis

Contributi on M argin =Sales Revenue - Variable Costs Sales = Fixed C osts + ariable Costs + V Profit B reak - even Sales = Fixed C osts + ariable C V osts

BEP Costs =

Fixed Costs Contributi on Margin

Contributi on Margin Ratio =

Contributi on Margin Sales Revenue

Pre-Determined Overhead Rate

Budgeted Overhead For Accounting Budgeted Casual Factor Period

PreDetermi ned Overhead Rate =

Material Efficiency Variance = [Standard Quantity Actual Quantity] x [Standard Price Per Unit] = (SQ-AQ)SP Material Price Variance = [Standard Price Per Unit Actual Price Per Unit] x [Actual Quantity Used] = (SP-AP)AQ Labour Efficiency Variance = [Standard Time Allowed Actual Time Taken] x [Standard Rate Per Hour] = (ST-AT)SR

Labour Rate Variance = [Standard Rate Per Hour Actual Rate Per Hour] x [Actual Time Taken] = (SR-AR)AT

Variable Overhead Variance Standard Cost of Variable Overheads Less Actual Cost Of Variable Overhead i.e. Units Produced x Standard Time Allowed x Standard Cost Per Hour Less Actual Costs Of Variable Overheads Variable Overhead Efficiency Variance = Number of Units x Standard Time Allowed x Standard Cost Per Hour (Standard cost of flexible budget time allowance for units produced) Less Actual Time Taken x Standard Cost Per Hour (Standard cost of actual time taken for units produced) = (6000 2 1.50) (11 100 1.50) = 18 000 16 650 = 1350 favourable Variable Overhead Spending Variance = Actual Time Taken x Standard Cost Per Hour (Standard cost of actual time taken for units produced ) Less Actual costs incurred = 11 100 1.50 = 16 650 17 200 = 550 adverse Fixed Overhead Spending Variance Budgeted Amount Less Actual Amount Fixed Overhead Denominator Variance Budgeted Amount Less Amount Applied To Units Produced (i.e. Units Produced x Standard Time Allowed x Standard Cost) Sales Contribution Variance Contrib Variance = difference in contribution margin per unit x Actual Sales in Units Sales Volume Variance Volume Variance = (Actual Sales Less Budgeted Sales) x Budgeted Contrib Margin Per Unit

Sales Quantity Variance Quantity Variance = (Actual Sales Less Budgeted Sales) x Budgeted Weighted Average Contrib Margin Per Unit Sales Mix Variance Sales Mix Variance = (Actual Sales Less Budgeted Sales) x (Budgeted Contrib Margin Per Unit Less Budgeted Weighted Average Contrib Margin Per Unit) Throughput Ratios
Return Per Factory Hour = Sales Price - Material Cost Time Spent At The Bottleneck Per Product

Cost Per Factory Hour =

Total Factory Cost Total Time Available At The Bottleneck

Return Per Factory Hour Cost Per Factory Hour

Throughput

Accounting

Ratio =

A ratio of less than 1 indicates that a product is losing money