Financial accounting equations/calculations Accounting equation: Assets - liabilities = equity Cost of sales: Opening stock + purchases + carriage inwards (purchase returns) (closing stock) Gross profit: Sales (sales returns) = net sales (cost of sales) Net assets: Assets - liabilities Working capital: Current assets - current liabilities Straight line depreciation: (cost - residual value) / no. of useful life years OR (cost - residual value) x annual % change Reducing balance depreciation: Year 1 = cost x fixed % depreciation After year 1 = Net book value x fixed % depreciation Provision for bad debts: Debtors x % stated AVCO: Av cost = total cost of goods in stores / no. of items in store
Operating profit: Gross profit - operating expenses Profit for the year: Operating profit - (tax + interest) Tax paid (cash flow): Tax at start of the year + tax paid during the year (tax at end of the year) Purchase of non-current assets (cash flow): Year 2 - year 1 + depreciation + proceeds from sale of non-current assets Gross profit percentage/margin: (Gross profit / revenue) x 100 = % Overhead percentage: (overhead/revenue) x 100 = % Operating profit percentage: (profit from operations/revenue) x 100 = % Net profit margin: (profit before tax/revenue) x 100 = % Return on capital employed (ROCE): (profit from operations/[equity + n.c liabilities]) x 100 = % Current ratio: Current assets / current liabilities = X:1 Liquid capital/acid test ratio: (current assets - inventories) / current liabilities = X:1 Inventory turnover (days): (Average inventories/cost of goods sold) x 365 days
Inventory turnover (times per year): cost of goods sold / average inventories Average settlement period for debtors: (trade receivables/revenue) x 365 days Average settlement period for creditors: (trade payables/costs of goods sold) x 365 days Gearing: (non-current liabilities / [total equity + non-current liabilities]) x 100 Interest cover ratio: Net profit before tax and interest / interest payable Return on equity (ROE): (net profit after interest and tax/equity) x 100 Earnings per share: Earnings available to ordinary shareholders / no. of ordinary shares issued