Mastering Costing and Financial Analysis: Essential Formulas with Real-World Examples for Business Success

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Introduction:

In this CMA Knowledge article, we are going to learn costing formulas, designed to provide you with actionable insights and real-world applications. Costing is the backbone of decision-making in any business, driving strategies, pricing, and resource allocation. Our mission is to make these 150 formulas approachable and understandable, preparing you to confidently apply them in the field.

Grasping the Concepts: Laying the Groundwork

Before diving into the formulas, let's ensure we have a solid understanding of the foundational concepts. Imagine you're managing a manufacturing unit. Familiarity with direct costs, indirect costs, fixed costs, and variable costs is essential. These concepts are the cornerstones of cost analysis, enabling you to dissect various elements that contribute to overall expenses.

1. Gross Profit Margin:

Concept: It measures the percentage of profit earned on sales. 

Use Case: Assessing profitability. 

Formula: (Gross Profit / Revenue) * 100 

Example: Gross Profit = 500,000 INR, Revenue = 1,000,000 INR 

Calculation: (500,000 / 1,000,000) * 100 = 50%

2. Net Profit Margin:

Concept: It indicates the percentage of net profit earned on sales. 

Use Case: Evaluating overall profitability. 

Formula: (Net Profit / Revenue) * 100 

Example: Net Profit = 200,000 INR, Revenue = 800,000 INR 

Calculation: (200,000 / 800,000) * 100 = 25%

3. Contribution Margin:

Concept: It represents the portion of sales revenue that covers variable costs. 

Use Case: Determining profitability per unit. Formula: (Contribution / Revenue) * 100 

Example: Contribution = 300,000 INR, Revenue = 500,000 INR 

Calculation: (300,000 / 500,000) * 100 = 60%

4. Break-Even Point (Units):

Concept: The point at which total costs equal total revenue. 

Use Case: Analyzing minimum sales required to cover costs. 

Formula: Break-Even Point (Units) = Fixed Costs / Contribution Margin per Unit 

Example: Fixed Costs = 100,000 INR, Contribution Margin per Unit = 50 INR 

Calculation: 100,000 / 50 = 2000 units

5. Break-Even Point (Revenue):

Concept: The revenue needed to cover all costs. 

Use Case: Understanding revenue goals for profitability. 

Formula: Break-Even Point (Revenue) = Fixed Costs / Contribution Margin Ratio 

Example: Fixed Costs = 150,000 INR, Contribution Margin Ratio = 0.4 

Calculation: 150,000 / 0.4 = 375,000 INR

6. Cost of Goods Sold (COGS):

Concept: Total direct costs of producing goods or services sold. 

Use Case: Determining the cost of producing goods. Formula: COGS = Beginning Inventory + Purchases - Ending Inventory 

Example: Beginning Inventory = 50,000 INR, Purchases = 200,000 INR, Ending Inventory = 30,000 INR 

Calculation: 50,000 + 200,000 - 30,000 = 220,000 INR

7. Variable Cost per Unit:

Concept: The cost that changes with the level of production. 

Use Case: Calculating costs per unit. 

Formula: Variable Cost per Unit = Total Variable Costs / Units Produced 

Example: Total Variable Costs = 40,000 INR, Units Produced = 1,000 units 

Calculation: 40,000 / 1,000 = 40 INR per unit

8. Fixed Cost per Unit:

Concept: The constant cost is not influenced by production levels. 

Use Case: Evaluating fixed costs per unit. 

Formula: Fixed Cost per Unit = Total Fixed Costs / Units Produced 

Example: Total Fixed Costs = 60,000 INR, Units Produced = 800 units 

Calculation: 60,000 / 800 = 75 INR per unit

9. Cost-Volume-Profit (CVP) Analysis:

Concept: Analyzing the relationship between costs, volume, and profits. 

Use Case: Decision-making for pricing and production levels. 

Formula: Profit = (Revenue * Unit Contribution Margin) - Fixed Costs 

Example: Revenue = 300,000 INR, Unit Contribution Margin = 100 INR, Fixed Costs = 120,000 INR Calculation: (300,000 * 100) - 120,000 = 18,000 INR

10. Direct Material Cost:

Concept: Cost of materials directly used in production. 

Use Case: Tracking material expenses. 

Formula: Direct Material Cost = Beginning Inventory + Purchases - Ending Inventory 

Example: Beginning Inventory = 20,000 INR, Purchases = 60,000 INR, Ending Inventory = 10,000 INR 

Calculation: 20,000 + 60,000 - 10,000 = 70,000 INR

11. Direct Labor Cost:

Concept: Cost of labor directly involved in production. 

Use Case: Evaluating labor expenses. 

Formula: Direct Labor Cost = Number of Hours Worked * Hourly Wage 

Example: Hours Worked = 500 hours, Hourly Wage = 100 INR 

Calculation: 500 hours * 100 INR = 50,000 INR

12. Manufacturing Overhead Cost:

Concept: Indirect costs associated with production. Use Case: Including overhead expenses in product cost. 

Formula: Manufacturing Overhead Cost = Indirect Labor + Indirect Materials + Other Overhead Costs Example: Indirect Labor = 15,000 INR, Indirect Materials = 10,000 INR, Other Overhead Costs = 20,000 INR 

Calculation: 15,000 + 10,000 + 20,000 = 45,000 INR

13. Standard Cost Variance:

Concept: The difference between actual and standard costs. 

Use Case: Identifying cost discrepancies. 

Formula: Variance = Actual Cost - Standard Cost Example: Actual Cost = 55,000 INR, Standard Cost = 50,000 INR 

Calculation: 55,000 - 50,000 = 5,000 INR (Favorable)

14. Direct Material Price Variance:

Concept: The difference between actual material cost and standard cost. 

Use Case: Analyzing material cost differences. Formula: Price Variance = (Actual Price - Standard Price) * Actual Quantity 

Example: Actual Price = 15 INR, Standard Price = 12 INR, Actual Quantity = 1,000 units 

Calculation: (15 - 12) * 1,000 = 3,000 INR (Unfavorable)

15. Direct Material Usage Variance:

Concept: The difference between actual material used and standard material usage. 

Use Case: Identifying material usage inefficiencies. Formula: Usage Variance = (Actual Quantity - Standard Quantity) * Standard Price 

Example: Actual Quantity = 950 units, Standard Quantity = 900 units, Standard Price = 10 INR Calculation: (950 - 900) * 10 = 500 INR (Favorable)

16. Direct Labor Rate Variance:

Concept: The difference between the actual labor rate and the standard labor rate. 

Use Case: Monitoring labor rate changes. 

Formula: Rate Variance = (Actual Rate - Standard Rate) * Actual Hours 

Example: Actual Rate = 120 INR, Standard Rate = 100 INR, Actual Hours = 400 hours 

Calculation: (120 - 100) * 400 = 8,000 INR (Unfavorable)

17. Direct Labor Efficiency Variance:

Concept: The difference between actual hours worked and standard hours allowed. 

Use Case: Identifying labor efficiency differences. 

Formula: Efficiency Variance = (Actual Hours - Standard Hours) * Standard Rate 

Example: Actual Hours = 350 hours, Standard Hours = 320 hours, Standard Rate = 80 INR 

Calculation: (350 - 320) * 80 = 2,400 INR (Favorable)

18. Return on Investment (ROI):

Concept: Evaluate the profitability of an investment. 

Use Case: Assessing investment opportunities. 

Formula: ROI = (Net Profit / Initial Investment) * 100 Example: Net Profit = 75,000 INR, Initial Investment = 500,000 INR 

Calculation: (75,000 / 500,000) * 100 = 15%

19. Economic Order Quantity (EOQ):

Concept: Determines the optimal order quantity to minimize inventory costs. 

Use Case: Managing inventory levels efficiently. 

Formula: EOQ = √((2 * Annual Demand * Ordering Cost) / Holding Cost per Unit) 

Example: Annual Demand = 10,000 units, Ordering Cost = 200 INR, Holding Cost per Unit = 10 INR Calculation: √((2 * 10,000 * 200) / 10) ≈ 141 units

20. Activity-Based Costing (ABC):

Concept: Allocates costs to specific activities driving costs. 

Use Case: Enhancing cost accuracy in complex processes. 

Formula: Cost per Activity = Total Cost of Activity / Total Activity Volume 

Example: Total Cost of Activity = 50,000 INR, Total Activity Volume = 2,000 hours 

Calculation: 50,000 / 2,000 = 25 INR per hour

21. Payback Period:

Concept: The time taken for an investment to pay back its initial cost. 

Use Case: Assessing investment recovery time. 

Formula: Payback Period = Initial Investment / Annual Cash Flow 

Example: Initial Investment = 200,000 INR, Annual Cash Flow = 50,000 INR 

Calculation: 200,000 / 50,000 = 4 years

22. Return on Assets (ROA):

Concept: Measures how efficiently assets generate profit. 

Use Case: Evaluating asset utilization. 

Formula: ROA = (Net Income / Average Total Assets) * 100 

Example: Net Income = 120,000 INR, Average Total Assets = 800,000 INR 

Calculation: (120,000 / 800,000) * 100 = 15%

23. Return on Equity (ROE):

Concept: Evaluate the return on shareholder equity. 

Use Case: Assessing shareholder profitability. 

Formula: ROE = (Net Income / Average Shareholder's Equity) * 100 

Example: Net Income = 150,000 INR, Average Shareholder's Equity = 1,000,000 INR 

Calculation: (150,000 / 1,000,000) * 100 = 15%

24. Payroll Costs:

Concept: Total cost of employee compensation. Use Case: Managing labor expenses. 

Formula: Payroll Costs = Wages + Benefits + Taxes 

Example: Wages = 300,000 INR, Benefits = 50,000 INR, Taxes = 30,000 INR 

Calculation: 300,000 + 50,000 + 30,000 = 380,000 INR

25. Cost of Capital:

Concept: The required return on invested capital. 

Use Case: Evaluating investment attractiveness. 

Formula: Cost of Capital = (Cost of Equity * Equity Weight) + (Cost of Debt * Debt Weight) 

Example: Cost of Equity = 12%, Equity Weight = 0.6, Cost of Debt = 8%, Debt Weight = 0.4 Calculation: (0.12 * 0.6) + (0.08 * 0.4) = 0.10 or 10%

26. Operating Profit Margin:

Concept: Measures operating profit as a percentage of revenue. 

Use Case: Assessing core profitability. 

Formula: Operating Profit Margin = (Operating Profit / Revenue) * 100 

Example: Operating Profit = 180,000 INR, Revenue = 600,000 INR 

Calculation: (180,000 / 600,000) * 100 = 30%

27. Return on Investment (ROI) - Marketing:

Concept: Evaluate the effectiveness of marketing campaigns. 

Use Case: Analyzing marketing campaign impact. 

Formula: ROI = (Net Profit from Marketing / Marketing Costs) * 100 

Example: Net Profit from Marketing = 50,000 INR, Marketing Costs = 20,000 INR 

Calculation: (50,000 / 20,000) * 100 = 250%

28. Residual Income:

Concept: Measures profit above the minimum required return. 

Use Case: Assessing performance against minimum expectations. 

Formula: Residual Income = Net Income - (Required Return * Equity) 

Example: Net Income = 90,000 INR, Required Return = 10%, Equity = 800,000 INR 

Calculation: 90,000 - (0.10 * 800,000) = 10,000 INR

29. Weighted Average Cost of Capital (WACC):

Concept: Calculates the average cost of capital. 

Use Case: Determining the cost of funds. 

Formula: WACC = (Cost of Equity * Equity Weight) + (Cost of Debt * Debt Weight) + (Cost of Preferred Stock * Preferred Stock Weight) 

Example: Cost of Equity = 14%, Equity Weight = 0.6, Cost of Debt = 8%, Debt Weight = 0.3, Cost of Preferred Stock = 10%, Preferred Stock Weight = 0.1 

Calculation: (0.14 * 0.6) + (0.08 * 0.3) + (0.10 * 0.1) = 0.114 or 11.4%

30. Budget Variance:

Concept: The difference between actual and budgeted amounts. 

Use Case: Tracking budget performance. 

Formula: Variance = Actual Amount - Budgeted Amount 

Example: Actual Amount = 25,000 INR, Budgeted Amount = 30,000 INR 

Calculation: 25,000 - 30,000 = -5,000 INR

31. Price Elasticity of Demand:

Concept: Measures the responsiveness of quantity demanded to price changes. 

Use Case: Understanding consumer behavior. 

Formula: Price Elasticity = (% Change in Quantity Demanded) / (% Change in Price) 

Example: Initial Price = 100 INR, Final Price = 120 INR, Initial Quantity Demanded = 100 units, Final Quantity Demanded = 80 units 

Calculation: ((80 - 100) / 100) / ((120 - 100) / 100) = -0.67

32. Variable Overhead Efficiency Variance:

Concept: Measures the difference between actual hours worked and standard hours allowed for variable overhead. 

Use Case: Evaluating variable overhead efficiency. 

Formula: Variable Overhead Efficiency Variance = (Actual Hours - Standard Hours) * Variable Overhead Rate per Hour 

Example: Actual Hours = 400 hours, Standard Hours = 360 hours, Variable Overhead Rate per Hour = 15 INR 

Calculation: (400 - 360) * 15 = 600 INR (Unfavorable)

33. Activity Ratio:

Concept: Measures how efficiently resources are utilized. 

Use Case: Evaluating resource allocation. 

Formula: Activity Ratio = Output / Input 

Example: Output (Units Produced) = 500 units, Input (Labor Hours) = 200 hours 

Calculation: 500 / 200 = 2.5 units per hour

34. Material Yield Variance:

Concept: Measures the difference between actual and standard material yield. 

Use Case: Analyzing material usage efficiency. 

Formula: Yield Variance = (Actual Yield - Standard Yield) * Standard Material Cost 

Example: Actual Yield = 450 kg, Standard Yield = 500 kg, Standard Material Cost = 8 INR/kg Calculation: (450 - 500) * 8 = -400 INR (Favorable)

35. Price-to-Earnings Ratio (P/E Ratio):

Concept: Compares stock price to earnings per share. 

Use Case: Assessing investment valuation. 

Formula: P/E Ratio = Stock Price / Earnings per Share (EPS) 

Example: Stock Price = 1,000 INR, EPS = 50 INR 

Calculation: 1,000 / 50 = 20

36. Activity Cost Driver Rate:

Concept: Assign overhead costs to activities based on cost drivers. 

Use Case: Allocating overhead costs accurately. 

Formula: Activity Cost Driver Rate = Total Activity Cost / Total Activity Units 

Example: Total Activity Cost = 60,000 INR, Total Activity Units (Machine Hours) = 2,000 hours Calculation: 60,000 / 2,000 = 30 INR per machine hour

37. Operating Cash Flow (OCF):

Concept: Measures cash generated by operations. 

Use Case: Evaluating cash flow availability. 

Formula: OCF = Net Income + Depreciation - Taxes + Non-cash Expenses 

Example: Net Income = 100,000 INR, Depreciation = 20,000 INR, Taxes = 15,000 INR, Non-cash Expenses = 5,000 INR 

Calculation: 100,000 + 20,000 - 15,000 + 5,000 = 110,000 INR

38. Return on Marketing Investment (ROMI):

Concept: Measures the profitability of marketing campaigns. 

Use Case: Assessing marketing campaign effectiveness. 

Formula: ROMI = (Net Profit from Marketing / Marketing Costs) * 100 

Example: Net Profit from Marketing = 40,000 INR, Marketing Costs = 10,000 INR 

Calculation: (40,000 / 10,000) * 100 = 400%

39. Net Present Value (NPV):

Concept: Evaluate the profitability of an investment in today's value. 

Use Case: Analyzing investment projects. 

Formula: NPV = ∑(Cash Flows / (1 + Discount Rate)^t) 

Example: Cash Flows = {20,000, 30,000, 40,000}, Discount Rate = 10%, t = {1, 2, 3} 

Calculation: (20,000 / 1.1^1) + (30,000 / 1.1^2) + (40,000 / 1.1^3) = 77,174 INR

40. Gross Operating Margin:

Concept: Measures the relationship between gross profit and operating income. 

Use Case: Assessing operational efficiency. 

Formula: Gross Operating Margin = (Gross Profit / Operating Income) * 100 

Example: Gross Profit = 150,000 INR, Operating Income = 120,000 INR 

Calculation: (150,000 / 120,000) * 100 = 125%

41. Equivalent Units of Production:

Concept: Measures the work done during a period, expressed in completed units. 

Use Case: Calculating production progress. 

Formula: Equivalent Units = Units Completed + (Units in Process * Percentage of Completion) Example: Units Completed = 800 units, Units in Process = 200 units, Percentage of Completion = 60% Calculation: 800 + (200 * 0.60) = 920 equivalent units

42. Payback Period - Accounting:

Concept: Measures the time needed to recover the initial investment in accounting terms. 

Use Case: Evaluating investment feasibility. 

Formula: Payback Period = Initial Investment / Annual Cash Inflows 

Example: Initial Investment = 300,000 INR, Annual Cash Inflows = 80,000 INR 

Calculation: 300,000 / 80,000 = 3.75 years

43. Net Operating Income (NOI):

Concept: Measures the profitability of income-producing properties. 

Use Case: Analyzing real estate investments. 

Formula: NOI = Gross Rental Income - Operating Expenses 

Example: Gross Rental Income = 200,000 INR, Operating Expenses = 50,000 INR 

Calculation: 200,000 - 50,000 = 150,000 INR

44. Capital Budgeting:

Concept: Evaluate potential investment projects. 

Use Case: Decision-making for long-term investments. 

Formula: Net Present Value (NPV) - Initial Investment 

Example: NPV = 100,000 INR, Initial Investment = 80,000 INR 

Calculation: 100,000 - 80,000 = 20,000 INR

45. Cost of Goods Manufactured (COGM):

Concept: Calculates the cost of goods produced during a specific period. 

Use Case: Determining production costs. 

Formula: COGM = Beginning Work-in-Process + Total Manufacturing Costs - Ending Work-in-Process Example: Beginning Work-in-Process = 10,000 INR, Total Manufacturing Costs = 150,000 INR, Ending Work-in-Process = 12,000 INR 

Calculation: 10,000 + 150,000 - 12,000 = 148,000 INR

46. Working Capital Ratio:

Concept: Measures a company's short-term liquidity. 

Use Case: Assessing financial health. 

Formula: Working Capital Ratio = Current Assets / Current Liabilities 

Example: Current Assets = 500,000 INR, Current Liabilities = 250,000 INR 

Calculation: 500,000 / 250,000 = 2

47. Quick Ratio (Acid-Test Ratio):

Concept: Measures the ability to cover short-term liabilities without relying on inventory. 

Use Case: Evaluating immediate liquidity. 

Formula: Quick Ratio = (Current Assets - Inventory) / Current Liabilities 

Example: Current Assets = 300,000 INR, Inventory = 100,000 INR, Current Liabilities = 150,000 INR

Calculation: (300,000 - 100,000) / 150,000 = 1

48. Residual Value:

Concept: The estimated value of an asset at the end of its useful life. 

Use Case: Depreciation calculations. 

Formula: Residual Value = Cost of Asset - Accumulated Depreciation 

Example: Cost of Asset = 50,000 INR, Accumulated Depreciation = 15,000 INR 

Calculation: 50,000 - 15,000 = 35,000 INR

49. Operating Cycle:

Concept: Measures the time it takes to convert resources into cash through sales. 

Use Case: Assessing the efficiency of working capital utilization. 

Formula: Operating Cycle = Days Inventory Outstanding + Days Sales Outstanding 

Example: Days Inventory Outstanding = 30 days, Days Sales Outstanding = 45 days 

Calculation: 30 + 45 = 75 days

50. Economic Value Added (EVA):

Concept: Measures the value generated by a company's operations. 

Use Case: Evaluating financial performance. 

Formula: EVA = Net Operating Profit After Taxes (NOPAT) - (Capital * Cost of Capital) 

Example: NOPAT = 120,000 INR, Capital = 800,000 INR, Cost of Capital = 0.10 or 10% 

Calculation: 120,000 - (800,000 * 0.10) = 40,000 INR

51. Return on Investment (ROI) - Training:

Concept: Measures the effectiveness of training programs. 

Use Case: Evaluating the impact of employee training. 

Formula: ROI = (Net Benefit from Training / Training Costs) * 100 

Example: Net Benefit from Training = 60,000 INR, Training Costs = 15,000 INR 

Calculation: (60,000 / 15,000) * 100 = 400%

52. Cost of Delay:

Concept: Quantifies the financial impact of delaying a project or decision. 

Use Case: Evaluating opportunity costs of postponement. 

Formula: Cost of Delay = (Expected Revenue Loss / Time Delay) * Time Value of Money 

Example: Expected Revenue Loss = 100,000 INR, Time Delay = 1 month, Time Value of Money = 5% Calculation: (100,000 / 12) * 0.05 = 416.67 INR

53. Conversion Costs:

Concept: The sum of direct labor and manufacturing overhead costs. 

Use Case: Analyzing total production costs. 

Formula: Conversion Costs = Direct Labor + Manufacturing Overhead 

Example: Direct Labor = 25,000 INR, Manufacturing Overhead = 15,000 INR 

Calculation: 25,000 + 15,000 = 40,000 INR

54. Inventory Turnover Ratio:

Concept: Measures the number of times inventory is sold and replaced. 

Use Case: Assessing inventory management efficiency. 

Formula: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory 

Example: Cost of Goods Sold = 400,000 INR, Average Inventory = (Beginning Inventory + Ending Inventory) / 2 Beginning Inventory = 60,000 INR, Ending Inventory = 80,000 INR 

Calculation: 400,000 / ((60,000 + 80,000) / 2) = 5 times

55. Return on Working Capital (ROWC):

Concept: Measures the return generated from working capital. 

Use Case: Analyzing short-term liquidity efficiency. 

Formula: ROWC = Operating Income / Working Capital 

Example: Operating Income = 180,000 INR, Working Capital = 120,000 INR 

Calculation: 180,000 / 120,000 = 1.5

56. Weighted Average Contribution Margin:

Concept: Calculates the average profit per unit after accounting for variable costs. 

Use Case: Evaluating profitability across different products or services. 

Formula: Weighted Average CM = (Product A CM * Product A Sales) + (Product B CM * Product B Sales) / Total Sales 

Example: Product A CM = 40 INR, Product A Sales = 500 units, Product B CM = 60 INR, Product B Sales = 300 units, Total Sales = 800 units 

Calculation: ((40 * 500) + (60 * 300)) / 800 = 48 INR

57. Activity-Based Costing - Per Unit:

Concept: Allocates costs to individual units based on activities performed. 

Use Case: Determining costs for each unit. 

Formula: ABC Cost per Unit = Total Activity Cost / Total Units Produced 

Example: Total Activity Cost = 50,000 INR, Total Units Produced = 2,000 units 

Calculation: 50,000 / 2,000 = 25 INR per unit

58. Retention Rate:

Concept: Measures the percentage of customers retained over a specific period. 

Use Case: Evaluating customer loyalty. 

Formula: Retention Rate = ((Customers at End of Period - New Customers) / Customers at Start of Period) * 100 

Example: Customers at Start of Period = 500, Customers at End of Period = 450, New Customers = 40 Calculation: ((450 - 40) / 500) * 100 = 82%

59. Days Payable Outstanding (DPO):

Concept: Measures the average number of days a company takes to pay its suppliers. 

Use Case: Assessing payment terms and cash flow. 

Formula: DPO = (Accounts Payable / Cost of Goods Sold) * Number of Days in Period 

Example: Accounts Payable = 30,000 INR, Cost of Goods Sold = 150,000 INR, Number of Days in Period = 365 

Calculation: (30,000 / 150,000) * 365 = 73 days

60. Cost of Quality (COQ):

Concept: Measures the costs incurred due to quality-related issues. 

Use Case: Assessing the impact of quality control measures. 

Formula: COQ = Prevention Costs + Appraisal Costs + Internal Failure Costs + External Failure Costs Example: Prevention Costs = 8,000 INR, Appraisal Costs = 5,000 INR, Internal Failure Costs = 2,000 INR, External Failure Costs = 3,000 INR 

Calculation: 8,000 + 5,000 + 2,000 + 3,000 = 18,000 INR

61. Inventory Holding Costs:

Concept: The cost of storing inventory over a period. 

Use Case: Evaluating the cost of holding excess inventory. 

Formula: Holding Costs = (Average Inventory * Holding Cost per Unit) / Time Period 

Example: Average Inventory = 5,000 units, Holding Cost per Unit = 2 INR, Time Period = 1 year Calculation: (5,000 * 2) / 1 = 10,000 INR

62. Cash Conversion Cycle:

Concept: Measures the time it takes to convert inputs to cash. 

Use Case: Evaluating operational efficiency. 

Formula: Cash Conversion Cycle = Days Inventory Outstanding + Days Sales Outstanding - Days Payables Outstanding 

Example: Days Inventory Outstanding = 30 days, Days Sales Outstanding = 45 days, Days Payables Outstanding = 20 days 

Calculation: 30 + 45 - 20 = 55 days

63. Return on Assets (ROA) - Dupont Formula:

Concept: Decomposes ROA into profit margin and asset turnover. 

Use Case: Analyzing factors impacting ROA. 

Formula: ROA = (Net Income / Revenue) * (Revenue / Average Total Assets) 

Example: Net Income = 120,000 INR, Revenue = 500,000 INR, Average Total Assets = 800,000 INR Calculation: (120,000 / 500,000) * (500,000 / 800,000) = 0.075 or 7.5%

64. Cost of Equity:

Concept: The return required by shareholders to invest in the company. 

Use Case: Estimating the cost of raising equity capital. 

Formula: Cost of Equity = Dividend per Share / Market Price per Share 

Example: Dividend per Share = 10 INR, Market Price per Share = 100 INR 

Calculation: 10 / 100 = 0.1 or 10%

65. Degree of Operating Leverage (DOL):

Concept: Measures the sensitivity of operating income to changes in sales. 

Use Case: Assessing the impact of fixed costs on profitability. 

Formula: DOL = Contribution Margin / Operating Income 

Example: Contribution Margin = 150,000 INR, Operating Income = 100,000 INR 

Calculation: 150,000 / 100,000 = 1.5

66. Degree of Financial Leverage (DFL):

Concept: Measures the sensitivity of earnings per share to changes in earnings before interest and taxes (EBIT). 

Use Case: Analyzing the impact of financial structure on profitability. 

Formula: DFL = EBIT / Earnings before Tax (EBT) 

Example: EBIT = 200,000 INR, EBT = 150,000 INR 

Calculation: 200,000 / 150,000 = 1.33

67. Degree of Total Leverage (DTL):

Concept: Measures the sensitivity of earnings per share to changes in sales. 

Use Case: Combines operating and financial leverage effects. 

Formula: DTL = DOL * DFL 

Example: DOL = 1.5, DFL = 1.33 

Calculation: 1.5 * 1.33 = 1.995

68. Price-Volume Variance:

Concept: Measures the impact of changes in sales volume and selling price. 

Use Case: Analyzing revenue variance. 

Formula: Price-Volume Variance = (Actual Units - Budgeted Units) * Actual Price 

Example: Actual Units = 1,200 units, Budgeted Units = 1,000 units, Actual Price = 50 INR 

Calculation: (1,200 - 1,000) * 50 = 10,000 INR

69. Net Present Value (NPV) - Perpetuity:

Concept: Calculates the present value of a perpetuity cash flow. 

Use Case: Valuing investments with constant cash flows. 

Formula: NPV = Cash Flow / Discount Rate 

Example: Cash Flow = 5,000 INR, Discount Rate = 0.08 or 8% 

Calculation: 5,000 / 0.08 = 62,500 INR

70. Return on Investment (ROI) - Inventory:

Concept: Measures inventory efficiency. 

Use Case: Evaluating how well inventory is managed. 

Formula: ROI = (Inventory Turnover * Gross Margin) / Average Inventory 

Example: Inventory Turnover = 6 times, Gross Margin = 40%, Average Inventory = (Beginning + Ending) / 2 Beginning Inventory = 60,000 INR, Ending Inventory = 80,000 INR 

Calculation: (6 * 0.40) / ((60,000 + 80,000) / 2) = 0.12 or 12%

71. Debt Ratio:

Concept: Measures the proportion of a company's assets funded by debt. 

Use Case: Assessing the financial leverage of a company. 

Formula: Debt Ratio = Total Debt / Total Assets 

Example: Total Debt = 200,000 INR, Total Assets = 500,000 INR 

Calculation: 200,000 / 500,000 = 0.4 or 40%

72. Days Sales Outstanding (DSO) - Receivables Turnover:

Concept: Measures the average number of days it takes to collect accounts receivable. 

Use Case: Evaluating credit and collection efficiency. 

Formula: DSO = 365 days / Receivables Turnover Example: Receivables Turnover = 8 times Calculation: 365 / 8 = 45.625 days

73. Contribution Margin Ratio:

Concept: Measures the proportion of revenue that covers variable costs. 

Use Case: Analyzing profitability at different levels of sales. 

Formula: Contribution Margin Ratio = (Contribution Margin / Revenue) * 100 

Example: Contribution Margin = 60,000 INR, Revenue = 150,000 INR 

Calculation: (60,000 / 150,000) * 100 = 40%

74. Operating Leverage Factor:

Concept: Measures the impact of fixed costs on operating income. 

Use Case: Evaluating the level of fixed costs in a company. 

Formula: Operating Leverage Factor = Contribution Margin / Operating Income 

Example: Contribution Margin = 80,000 INR, Operating Income = 40,000 INR 

Calculation: 80,000 / 40,000 = 2

75. Degree of Financial Leverage (DFL) - DuPont Formula:

Concept: Measures the sensitivity of earnings per share to changes in EBIT and interest. 

Use Case: Combining financial leverage with profit margin. 

Formula: DFL = (EBIT / EBT) * (1 - Tax Rate) Example: EBIT = 180,000 INR, EBT = 150,000 INR, Tax Rate = 0.30 or 30% 

Calculation: (180,000 / 150,000) * (1 - 0.30) = 1.20

76. Economic Order Quantity (EOQ) - Quantity Discount:

Concept: Calculates the optimal order quantity when quantity discounts are offered. 

Use Case: Managing inventory costs with quantity discounts. 

Formula: EOQ = √((2 * Annual Demand * Ordering Cost) / Holding Cost per Unit) * (1 - Discount Rate) 

Example: Annual Demand = 12,000 units, Ordering Cost = 300 INR, Holding Cost per Unit = 10 INR, Discount Rate = 0.10 or 10% 

Calculation: √((2 * 12,000 * 300) / 10) * (1 - 0.10) ≈ 168 units

77. Return on Investment (ROI) - Advertising:

Concept: Measures the return generated from advertising campaigns. 

Use Case: Analyzing the impact of advertising efforts. 

Formula: ROI = (Additional Profit from Advertising / Advertising Costs) * 100 

Example: Additional Profit from Advertising = 50,000 INR, Advertising Costs = 10,000 INR Calculation: (50,000 / 10,000) * 100 = 500%

78. Debt-to-Equity Ratio:

Concept: Measures the ratio of total debt to total equity. 

Use Case: Assessing the financial risk of a company. 

Formula: Debt-to-Equity Ratio = Total Debt / Total Equity 

Example: Total Debt = 150,000 INR, Total Equity = 250,000 INR 

Calculation: 150,000 / 250,000 = 0.6 or 60%

79. Return on Investment (ROI) - Employee Training:

Concept: Measures the return generated from training employees. 

Use Case: Evaluating the impact of training programs. 

Formula: ROI = (Productivity Gains from Training / Training Costs) * 100 

Example: Productivity Gains from Training = 70,000 INR, Training Costs = 15,000 INR 

Calculation: (70,000 / 15,000) * 100 = 466.67%

80. Activity-Based Costing (ABC) - Multiple Cost Pools:

Concept: Allocates costs based on multiple cost drivers. 

Use Case: Enhancing cost allocation accuracy in complex processes. 

Formula: Cost per Unit = (Total Cost of Activity / Total Activity Units) * Units of Cost Driver 

Example: Total Cost of Activity = 60,000 INR, Total Activity Units (Machine Hours) = 2,000 hours, Units of Cost Driver = 400 hours 

Calculation: (60,000 / 2,000) * 400 = 12,000 INR per unit

81. Profitability Index (PI):

Concept: Measures the profitability of an investment relative to its initial cost. 

Use Case: Ranking and selecting investment projects. 

Formula: PI = Present Value of Cash Flows / Initial Investment 

Example: Present Value of Cash Flows = 90,000 INR, Initial Investment = 80,000 INR 

Calculation: 90,000 / 80,000 = 1.125

82. Break-Even Point (Units):

Concept: The point at which total revenue equals total costs. 

Use Case: Determining the level of sales needed to cover costs. 

Formula: Break-Even Point (Units) = Fixed Costs / Contribution Margin per Unit 

Example: Fixed Costs = 50,000 INR, Contribution Margin per Unit = 25 INR 

Calculation: 50,000 / 25 = 2,000 units

83. Economic Order Quantity (EOQ) - Quantity Discount with Constraints:

Concept: Calculates the optimal order quantity with quantity discounts and constraints. 

Use Case: Managing inventory with multiple variables. 

Formula: EOQ = √((2 * Annual Demand * Ordering Cost) / Holding Cost per Unit) * ((1 - Discount Rate) / (1 - (Discount Rate * Constraint))) 

Example: Annual Demand = 18,000 units, Ordering Cost = 250 INR, Holding Cost per Unit = 8 INR, Discount Rate = 0.10 or 10%, Constraint = 0.50 or 50% 

Calculation: √((2 * 18,000 * 250) / 8) * ((1 - 0.10) / (1 - (0.10 * 0.50))) ≈ 194 units

84. Net Operating Cycle:

Concept: Measures the time required to convert inventory and receivables into cash. 

Use Case: Evaluating the efficiency of the operating cycle. 

Formula: Net Operating Cycle = Operating Cycle - Days Payables Outstanding 

Example: Operating Cycle = 60 days, Days Payables Outstanding = 20 days 

Calculation: 60 - 20 = 40 days

85. Cash Ratio:

Concept: Measures the company's ability to cover short-term liabilities with cash and equivalents. 

Use Case: Evaluating immediate liquidity. 

Formula: Cash Ratio = (Cash + Cash Equivalents) / Current Liabilities 

Example: Cash = 20,000 INR, Cash Equivalents = 10,000 INR, Current Liabilities = 30,000 INR Calculation: (20,000 + 10,000) / 30,000 = 1

86. Cost of Goods Sold (COGS) - Weighted Average Method:

Concept: Calculates COGS based on the weighted average cost of inventory. 

Use Case: Calculating the cost of goods sold with fluctuating inventory costs. 

Formula: COGS = Beginning Inventory + Purchases - Ending Inventory 

Example: Beginning Inventory = 15,000 INR, Purchases = 40,000 INR, Ending Inventory = 12,000 INR Calculation: 15,000 + 40,000 - 12,000 = 43,000 INR

87. Marginal Costing - Break-Even Sales:

Concept: Calculates the sales needed to reach the break-even point. 

Use Case: Determining the sales target to cover costs. 

Formula: Break-Even Sales = Fixed Costs / Contribution Margin Ratio 

Example: Fixed Costs = 60,000 INR, Contribution Margin Ratio = 0.40 or 40% 

Calculation: 60,000 / 0.40 = 150,000 INR

88. Sustainable Growth Rate:

Concept: Measures the rate at which a company can grow while maintaining financial stability. 

Use Case: Analyzing the balance between growth and financial health. 

Formula: Sustainable Growth Rate = Retention Rate * Return on Equity (ROE) 

Example: Retention Rate = 0.60 or 60%, ROE = 0.12 or 12% 

Calculation: 0.60 * 0.12 = 0.072 or 7.2%

89. Economic Order Quantity (EOQ) - Shortage Cost:

Concept: Calculates the optimal order quantity considering the costs of shortage. 

Use Case: Managing inventory with potential stockouts. 

Formula: EOQ = √((2 * Demand * Ordering Cost * Shortage Cost per Unit) / Holding Cost per Unit) Example: Demand = 15,000 units, Ordering Cost = 200 INR, Shortage Cost per Unit = 8 INR, Holding Cost per Unit = 6 INR 

Calculation: √((2 * 15,000 * 200 * 8) / 6) ≈ 1,885 units

90. Operating Cash Flow (OCF) - Indirect Method:

Concept: Calculates cash flow from operations using the indirect method. 

Use Case: Analyzing cash flow generation from core business activities. 

Formula: OCF = Net Income + Depreciation - Changes in Working Capital - Other Non-Cash Expenses Example: Net Income = 120,000 INR, Depreciation = 30,000 INR, Changes in Working Capital = 10,000 INR, Other Non-Cash Expenses = 5,000 INR 

Calculation: 120,000 + 30,000 - 10,000 - 5,000 = 135,000 INR

91. Days Inventory Outstanding (DIO) - Days Sales of Inventory:

Concept: Measures the average number of days inventory is held before being sold. 

Use Case: Evaluating inventory turnover efficiency. 

Formula: DIO = 365 days / Inventory Turnover Example: Inventory Turnover = 6 times 

Calculation: 365 / 6 = 60.83 days

92. Profit Margin Ratio:

Concept: Measures the portion of sales that results in profit. 

Use Case: Analyzing profitability. 

Formula: Profit Margin Ratio = (Net Profit / Revenue) * 100 

Example: Net Profit = 45,000 INR, Revenue = 150,000 INR 

Calculation: (45,000 / 150,000) * 100 = 30%

93. Price-to-Book Ratio (P/B Ratio):

Concept: Compares a company's market value to its book value. 

Use Case: Assessing investment valuation relative to book value. 

Formula: P/B Ratio = Market Price per Share / Book Value per Share 

Example: Market Price per Share = 120 INR, Book Value per Share = 80 INR 

Calculation: 120 / 80 = 1.5

94. Total Factor Productivity (TFP):

Concept: Measures the efficiency of inputs in producing output. 

Use Case: Analyzing overall productivity. 

Formula: TFP = Output / (Labor + Capital) 

Example: Output = 500 units, Labor Input = 200 hours, Capital Input = 50,000 INR 

Calculation: 500 / (200 + 50,000) = 0.0099

95. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA):

Concept: Measures a company's operating performance. 

Use Case: Analyzing operating profitability. 

Formula: EBITDA = Operating Revenue - Operating Expenses + Depreciation + Amortization Example: Operating Revenue = 300,000 INR, Operating Expenses = 180,000 INR, Depreciation = 20,000 INR, Amortization = 5,000 INR 

Calculation: 300,000 - 180,000 + 20,000 + 5,000 = 145,000 INR

96. Cost of Capital:

Concept: The average rate of return required by investors for funding a company. 

Use Case: Evaluating project viability. 

Formula: Cost of Capital = (Equity / Total Capital) * Cost of Equity + (Debt / Total Capital) * Cost of Debt * (1 - Tax Rate) 

Example: Equity = 300,000 INR, Debt = 200,000 INR, Total Capital = 500,000 INR, Cost of Equity = 0.12 or 12%, Cost of Debt = 0.08 or 8%, Tax Rate = 0.30 or 30% 

Calculation: (300,000 / 500,000) * 0.12 + (200,000 / 500,000) * 0.08 * (1 - 0.30) = 0.1016 or 10.16%

97. Revenue Recognition - Percentage of Completion Method:

Concept: Recognizes revenue proportionally as work is completed. 

Use Case: Recognizing revenue in long-term projects. 

Formula: Revenue Recognized = Total Contract Price * Percentage of Completion 

Example: Total Contract Price = 150,000 INR, Percentage of Completion = 0.60 or 60% 

Calculation: 150,000 * 0.60 = 90,000 INR

98. Activity-Based Costing (ABC) - Resource Driver Rate:

Concept: Allocates costs based on the consumption of resources. 

Use Case: Enhancing accuracy in cost allocation. 

Formula: Resource Driver Rate = Total Resource Cost / Total Resource Units 

Example: Total Resource Cost = 50,000 INR, Total Resource Units (Machine Hours) = 1,500 hours Calculation: 50,000 / 1,500 = 33.33 INR per machine hour

99. Internal Rate of Return (IRR):

Concept: Measures the rate at which an investment's net present value is zero. 

Use Case: Evaluating investment feasibility. 

Formula: NPV = ∑(Cash Flows / (1 + IRR)^t) 

Example: Cash Flows = {-50,000, 15,000, 20,000, 25,000}, t = {0, 1, 2, 3}, NPV = 0 

Calculation: -50,000 + (15,000 / (1 + IRR)^1) + (20,000 / (1 + IRR)^2) + (25,000 / (1 + IRR)^3) = 0

100. Return on Equity (ROE) - DuPont Formula:

Concept: Decomposes ROE into the profit margin, asset turnover, and equity multiplier. 

Use Case: Analyzing factors affecting ROE. 

Formula: ROE = (Net Income / Revenue) * (Revenue / Average Total Assets) * (Average Total Assets / Average Equity) 

Example: Net Income = 90,000 INR, Revenue = 300,000 INR, Average Total Assets = 180,000 INR, Average Equity = 120,000 INR 

Calculation: (90,000 / 300,000) * (300,000 / 180,000) * (180,000 / 120,000) = 0.25 or 25%

101. Return on Investment (ROI) - Marketing Campaign:

Concept: Measures the return generated from marketing campaigns. 

Use Case: Evaluating the effectiveness of marketing efforts. 

Formula: ROI = (Net Profit from Campaign / Marketing Costs) * 100 

Example: Net Profit from Campaign = 75,000 INR, Marketing Costs = 20,000 INR 

Calculation: (75,000 / 20,000) * 100 = 375%

102. Days Sales Outstanding (DSO) - Receivables Turnover Ratio:

Concept: Measures the average collection period for accounts receivable. 

Use Case: Assessing credit and collection efficiency. 

Formula: DSO = 365 days / Receivables Turnover Ratio 

Example: Receivables Turnover Ratio = 10 times 

Calculation: 365 / 10 = 36.5 days

103. Debt Service Coverage Ratio (DSCR):

Concept: Measures a company's ability to meet debt obligations. 

Use Case: Evaluating solvency and creditworthiness. 

Formula: DSCR = Net Operating Income / Total Debt Service 

Example: Net Operating Income = 180,000 INR, Total Debt Service = 120,000 INR 

Calculation: 180,000 / 120,000 = 1.5

104. Return on Assets (ROA) - Dupont Formula with Margin and Turnover:

Concept: Decomposes ROA into profit margin and asset turnover. 

Use Case: Analyzing the drivers of ROA. 

Formula: ROA = Net Profit Margin * Asset Turnover 

Example: Net Profit Margin = 0.15 or 15%, Asset Turnover = 1.5 

Calculation: 0.15 * 1.5 = 0.225 or 22.5%

105. Debt-to-Equity Ratio (Market Value):

Concept: Measures the relationship between a company's market value debt and equity. 

Use Case: Analyzing capital structure from a market perspective. 

Formula: Debt-to-Equity Ratio (Market Value) = Market Value of Debt / Market Value of Equity Example: Market Value of Debt = 250,000 INR, Market Value of Equity = 400,000 INR 

Calculation: 250,000 / 400,000 = 0.625 or 62.5%

106. Asset Turnover Ratio:

Concept: Measures the efficiency of using assets to generate revenue. 

Use Case: Assessing the effectiveness of asset utilization. 

Formula: Asset Turnover Ratio = Revenue / Average Total Assets 

Example: Revenue = 350,000 INR, Average Total Assets = 200,000 INR 

Calculation: 350,000 / 200,000 = 1.75

107. Earnings Before Interest and Taxes (EBIT) - Operating Income:

Concept: Represents a company's operating profitability before interest and taxes. 

Use Case: Analyzing core business profitability. 

Formula: EBIT = Revenue - Operating 

Expenses Example: Revenue = 450,000 INR, Operating Expenses = 280,000 INR 

Calculation: 450,000 - 280,000 = 170,000 INR

108. Net Realizable Value (NRV):

Concept: The estimated selling price of an asset minus costs to sell. 

Use Case: Valuing inventory or assets for financial reporting. 

Formula: NRV = Selling Price - Costs to Sell 

Example: Selling Price = 6,000 INR, Costs to Sell = 800 INR 

Calculation: 6,000 - 800 = 5,200 INR

109. Discounted Payback Period:

Concept: Measures the time required to recover the initial investment in discounted terms. Use Case: Evaluating investment feasibility with time value of money. 

Formula: Discounted Payback Period = Number of Years Before Full Recovery + (Remaining Investment / Cash Flow in Year After Full Recovery) 

Example: Number of Years Before Full Recovery = 2 years, Remaining Investment = 20,000 INR, Cash Flow in Year After Full Recovery = 8,000 INR 

Calculation: 2 + (20,000 / 8,000) = 4.5 years

110. Economic Order Quantity (EOQ) - Shortage and Holding Costs:

Concept: Calculates the optimal order quantity considering shortage and holding costs. 

Use Case: Managing inventory with both costs taken into account. 

Formula: EOQ = √((2 * Demand * Ordering Cost * Shortage Cost per Unit) / (Holding Cost per Unit + Shortage Cost per Unit)) 

Example: Demand = 10,000 units, Ordering Cost = 150 INR, Shortage Cost per Unit = 4 INR, Holding Cost per Unit = 3 INR 

Calculation: √((2 * 10,000 * 150 * 4) / (3 + 4)) ≈ 292 units

111. Price Elasticity of Demand:

Concept: Measures the responsiveness of quantity demanded to changes in price. 

Use Case: Analyzing consumer behavior and pricing strategies. 

Formula: Price Elasticity of Demand = (% Change in Quantity Demanded) / (% Change in Price) Example: Initial Quantity Demanded = 1,000 units, New Quantity Demanded = 800 units, Initial Price = 50 INR, New Price = 60 INR 

Calculation: ((800 - 1,000) / ((800 + 1,000) / 2)) / ((60 - 50) / ((60 + 50) / 2)) = -0.8

112. Current Ratio:

Concept: Measures a company's short-term liquidity and ability to cover current liabilities. 

Use Case: Evaluating short-term financial health. 

Formula: Current Ratio = Current Assets / Current Liabilities 

Example: Current Assets = 200,000 INR, Current Liabilities = 100,000 INR 

Calculation: 200,000 / 100,000 = 2

113. Debt-to-Income Ratio (DTI):

Concept: Measures the proportion of a person's debt payments to their income. 

Use Case: Assessing an individual's debt burden. 

Formula: DTI = Total Monthly Debt Payments / Monthly Gross Income 

Example: Total Monthly Debt Payments = 1,500 INR, Monthly Gross Income = 5,000 INR 

Calculation: 1,500 / 5,000 = 0.3 or 30%

114. Operating Margin Ratio:

Concept: Measures the proportion of revenue that covers operating expenses. 

Use Case: Analyzing operational efficiency. 

Formula: Operating Margin Ratio = (Operating Income / Revenue) * 100 

Example: Operating Income = 60,000 INR, Revenue = 200,000 INR 

Calculation: (60,000 / 200,000) * 100 = 30%

115. Economic Order Quantity (EOQ) - Quantity Discount and Constraints:

Concept: Calculates the optimal order quantity with quantity discounts and constraints. 

Use Case: Managing inventory with multiple variables. 

Formula: EOQ = √((2 * Annual Demand * Ordering Cost) / Holding Cost per Unit) * ((1 - Discount Rate) / (1 - (Discount Rate * Constraint))) 

Example: Annual Demand = 20,000 units, Ordering Cost = 180 INR, Holding Cost per Unit = 5 INR, Discount Rate = 0.15 or 15%, Constraint = 0.60 or 60% 

Calculation: √((2 * 20,000 * 180) / 5) * ((1 - 0.15) / (1 - (0.15 * 0.60))) ≈ 707 units

116. Price-Volume Mix Analysis:

Concept: Analyzes the impact of changes in price, volume, and product mix on revenue. 

Use Case: Understanding factors driving revenue variations. 

Formula: Price-Volume Mix Variance = (Actual Revenue - Budgeted Revenue) = Price Variance + Volume Variance + Mix Variance 

Example: Actual Revenue = 250,000 INR, Budgeted Revenue = 220,000 INR 

Calculation: 250,000 - 220,000 = Price Variance + Volume Variance + Mix Variance

117. Working Capital Turnover Ratio:

Concept: Measures a company's ability to generate revenue with its working capital. Use Case: Assessing efficiency in utilizing working capital. 

Formula: Working Capital Turnover Ratio = Revenue / Working Capital 

Example: Revenue = 400,000 INR, Working Capital = 100,000 INR 

Calculation: 400,000 / 100,000 = 4

118. DuPont Analysis - Equity Multiplier:

Concept: Decomposes ROE into the profit margin, asset turnover, and equity multiplier. 

Use Case: Analyzing the drivers of ROE. 

Formula: ROE = Net Profit Margin * Asset Turnover * Equity Multiplier 

Example: Net Profit Margin = 0.10 or 10%, Asset Turnover = 1.8, Equity Multiplier = 1.5 

Calculation: 0.10 * 1.8 * 1.5 = 0.27 or 27%

119. Inventory Conversion Period (ICP):

Concept: Measures the average time it takes for inventory to be sold and converted to cash. 

Use Case: Analyzing inventory turnover efficiency. 

Formula: ICP = 365 days / Inventory Turnover Ratio 

Example: Inventory Turnover Ratio = 6 times 

Calculation: 365 / 6 = 60.83 days

120. Return on Investment (ROI) - Real Estate:

Concept: Measures the return generated from real estate investments. 

Use Case: Evaluating the profitability of real estate properties. 

Formula: ROI = (Net Income from Property / Property Cost) * 100 

Example: Net Income from Property = 24,000 INR, Property Cost = 300,000 INR 

Calculation: (24,000 / 300,000) * 100 = 8%

121. Gross Profit Margin Ratio:

Concept: Measures the proportion of revenue that covers the cost of goods sold. 

Use Case: Analyzing the efficiency of production and cost control. 

Formula: Gross Profit Margin Ratio = (Gross Profit / Revenue) * 100 

Example: Gross Profit = 80,000 INR, Revenue = 200,000 INR 

Calculation: (80,000 / 200,000) * 100 = 40%

122. Break-Even Point (Sales Revenue):

Concept: The point at which total revenue equals total costs. 

Use Case: Determining the sales target to cover costs. 

Formula: Break-Even Point (Sales Revenue) = Fixed Costs / Contribution Margin Ratio 

Example: Fixed Costs = 50,000 INR, Contribution Margin Ratio = 0.30 or 30% 

Calculation: 50,000 / 0.30 = 166,667 INR

123. Profitability Index (PI) - Discounted Cash Flows:

Concept: Measures the value generated per unit of investment. 

Use Case: Ranking and selecting investment projects with discounted cash flows. 

Formula: PI = Present Value of Cash Flows / Initial Investment 

Example: Present Value of Cash Flows = 120,000 INR, Initial Investment = 100,000 INR 

Calculation: 120,000 / 100,000 = 1.2

124. Return on Equity (ROE) - DuPont Formula with Leverage:

Concept: Decomposes ROE into profit margin, asset turnover, and leverage. 

Use Case: Analyzing the components of ROE. Formula: ROE = Net Profit Margin * Asset Turnover * Leverage 

Example: Net Profit Margin = 0.12 or 12%, Asset Turnover = 1.5, Leverage = 1.25 

Calculation: 0.12 * 1.5 * 1.25 = 0.225 or 22.5%

125. Working Capital Cycle:

Concept: Measures the time it takes to convert net working capital to cash. 

Use Case: Analyzing the efficiency of working capital management. 

Formula: Working Capital Cycle = Days Inventory Outstanding + Days Receivables Outstanding - Days Payables Outstanding 

Example: Days Inventory Outstanding = 40 days, Days Receivables Outstanding = 30 days, Days Payables Outstanding = 20 days 

Calculation: 40 + 30 - 20 = 50 days

126. Inventory Turnover Ratio - COGS Method:

Concept: Measures the efficiency of inventory turnover using the cost of goods sold. 

Use Case: Assessing the effectiveness of inventory management. 

Formula: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory 

Example: Cost of Goods Sold = 150,000 INR, Average Inventory = (Beginning + Ending) / 2 Beginning Inventory = 30,000 INR, Ending Inventory = 25,000 INR 

Calculation: 150,000 / ((30,000 + 25,000) / 2) = 6 times

127. Return on Investment (ROI) - Research and Development:

Concept: Measures the return generated from research and development investments. 

Use Case: Evaluating the impact of R&D efforts. 

Formula: ROI = (Additional Profit from R&D / R&D Costs) * 100 

Example: Additional Profit from R&D = 60,000 INR, R&D Costs = 15,000 INR 

Calculation: (60,000 / 15,000) * 100 = 400%

128. Degree of Operating Leverage (DOL) - Weighted Average Method:

Concept: Measures the sensitivity of operating income to changes in sales using weighted averages. 

Use Case: Analyzing the effect of fixed costs on profitability. 

Formula: DOL = (Weighted Contribution Margin / Weighted Operating Income) * (1 - Tax Rate) Example: Weighted Contribution Margin = 90,000 INR, Weighted Operating Income = 60,000 INR, Tax Rate = 0.25 or 25% 

Calculation: (90,000 / 60,000) * (1 - 0.25) = 1.05

129. Profitability Index (PI) - Payback Period Method:

Concept: Measures the value generated per unit of investment using a payback period. 

Use Case: Ranking investment projects with payback period considerations. 

Formula: PI = (Net Present Value / Initial Investment) + 1 

Example: Net Present Value = 40,000 INR, Initial Investment = 30,000 INR 

Calculation: (40,000 / 30,000) + 1 = 1.3333

130. Price-to-Earnings Ratio (P/E Ratio):

Concept: Compares a company's market price per share to its earnings per share. 

Use Case: Assessing valuation relative to earnings. 

Formula: P/E Ratio = Market Price per Share / Earnings per Share 

Example: Market Price per Share = 150 INR, Earnings per Share = 10 INR 

Calculation: 150 / 10 = 15

131. Return on Investment (ROI) - Employee Training:

Concept: Measures the return generated from investments in employee training. 

Use Case: Evaluating the impact of training programs on employee performance. 

Formula: ROI = (Additional Productivity / Training Costs) * 100 

Example: Additional Productivity = 50,000 INR, Training Costs = 10,000 INR 

Calculation: (50,000 / 10,000) * 100 = 500%

132. Accounts Payable Turnover Ratio:

Concept: Measures how frequently a company pays its suppliers. 

Use Case: Evaluating the efficiency of accounts payable management. 

Formula: Accounts Payable Turnover Ratio = Purchases / Average Accounts Payable 

Example: Purchases = 180,000 INR, Average Accounts Payable = (Beginning + Ending) / 2 Beginning Accounts Payable = 25,000 INR, Ending Accounts Payable = 20,000 INR 

Calculation: 180,000 / ((25,000 + 20,000) / 2) = 9 times

133. Debt Service Coverage Ratio (DSCR) - Real Estate:

Concept: Measures a property's ability to cover debt payments. 

Use Case: Assessing the financial stability of real estate investments. 

Formula: DSCR = Net Operating Income / Debt Service 

Example: Net Operating Income = 100,000 INR, Debt Service = 75,000 INR 

Calculation: 100,000 / 75,000 = 1.33

134. Net Working Capital:

Concept: Measures the difference between current assets and current liabilities. 

Use Case: Assessing the short-term liquidity of a company. 

Formula: Net Working Capital = Current Assets - Current Liabilities 

Example: Current Assets = 150,000 INR, Current Liabilities = 100,000 INR 

Calculation: 150,000 - 100,000 = 50,000 INR

135. Return on Investment (ROI) - Social Media Campaign:

Concept: Measures the return generated from social media marketing campaigns. 

Use Case: Evaluating the effectiveness of online marketing efforts. 

Formula: ROI = (Net Profit from Campaign / Campaign Costs) * 100 

Example: Net Profit from Campaign = 30,000 INR, Campaign Costs = 5,000 INR 

Calculation: (30,000 / 5,000) * 100 = 600%

136. Cash Flow Margin Ratio:

Concept: Measures the proportion of revenue that is converted to cash flow from operations. 

Use Case: Analyzing the cash flow efficiency of operations. 

Formula: Cash Flow Margin Ratio = (Cash Flow from Operations / Revenue) * 100 

Example: Cash Flow from Operations = 75,000 INR, Revenue = 250,000 INR 

Calculation: (75,000 / 250,000) * 100 = 30%

137. Days Payables Outstanding (DPO):

Concept: Measures the average time it takes to pay suppliers. 

Use Case: Assessing the efficiency of accounts payable management. 

Formula: DPO = 365 days / Accounts Payable Turnover Ratio 

Example: Accounts Payable Turnover Ratio = 12 times 

Calculation: 365 / 12 = 30.42 days

138. Profit Margin on Sales - Operating Method:

Concept: Measures the profit earned from sales after accounting for operating expenses. 

Use Case: Analyzing operational profitability. 

Formula: Profit Margin on Sales = (Operating Income / Revenue) * 100 

Example: Operating Income = 50,000 INR, Revenue = 180,000 INR 

Calculation: (50,000 / 180,000) * 100 = 27.78%

139. Payback Period:

Concept: Measures the time required to recover the initial investment. 

Use Case: Evaluating investment feasibility with a simple metric. 

Formula: Payback Period = Initial Investment / Annual Cash Flow 

Example: Initial Investment = 120,000 INR, Annual Cash Flow = 30,000 INR 

Calculation: 120,000 / 30,000 = 4 years

140. Fixed Asset Turnover Ratio:

Concept: Measures how efficiently a company uses its fixed assets to generate revenue. 

Use Case: Evaluating the effectiveness of asset utilization. 

Formula: Fixed Asset Turnover Ratio = Revenue / Average Fixed Assets 

Example: Revenue = 500,000 INR, Average Fixed Assets = (Beginning + Ending) / 2 Beginning Fixed Assets = 150,000 INR, Ending Fixed Assets = 180,000 INR 

Calculation: 500,000 / ((150,000 + 180,000) / 2) = 2.22

141. Debt Ratio:

Concept: Measures the proportion of a company's assets financed by debt. 

Use Case: Evaluating the extent of leverage in a company's capital structure. 

Formula: Debt Ratio = Total Debt / Total Assets 

Example: Total Debt = 200,000 INR, Total Assets = 500,000 INR 

Calculation: 200,000 / 500,000 = 0.4 or 40%

142. Operating Cycle:

Concept: Measures the time it takes to convert inventory to cash. 

Use Case: Evaluating the efficiency of a company's operating cycle. 

Formula: Operating Cycle = Days Inventory Outstanding + Days Receivables Outstanding 

Example: Days Inventory Outstanding = 45 days, Days Receivables Outstanding = 30 days 

Calculation: 45 + 30 = 75 days

143. Return on Investment (ROI) - Capital Expenditures:

Concept: Measures the return generated from capital investments. 

Use Case: Assessing the profitability of long-term investments. 

Formula: ROI = (Net Cash Inflow from Investment / Initial Investment) * 100 

Example: Net Cash Inflow from Investment = 80,000 INR, Initial Investment = 150,000 INR Calculation: (80,000 / 150,000) * 100 = 53.33%

144. Net Present Value (NPV) - Uneven Cash Flows:

Concept: Measures the present value of future cash flows considering time value of money. 

Use Case: Evaluating investment projects with varying cash flows. 

Formula: NPV = Σ(Cash Flow / (1 + Discount Rate)^t) 

Example: Cash Flows = {20,000, 30,000, 40,000}, Discount Rate = 0.10 or 10% 

Calculation: (20,000 / (1 + 0.10)^1) + (30,000 / (1 + 0.10)^2) + (40,000 / (1 + 0.10)^3)

145. Return on Investment (ROI) - Online Advertising:

Concept: Measures the return generated from online advertising campaigns. 

Use Case: Assessing the effectiveness of digital marketing efforts. 

Formula: ROI = (Additional Revenue from Advertising / Advertising Costs) * 100 

Example: Additional Revenue from Advertising = 50,000 INR, Advertising 

Costs = 10,000 INR Calculation: (50,000 / 10,000) * 100 = 500%

146. Operating Cash Flow Margin Ratio:

Concept: Measures the proportion of revenue converted into operating cash flow. 

Use Case: Analyzing the efficiency of operations in generating cash flow. 

Formula: Operating Cash Flow Margin Ratio = (Operating Cash Flow / Revenue) * 100 

Example: Operating Cash Flow = 120,000 INR, Revenue = 300,000 INR 

Calculation: (120,000 / 300,000) * 100 = 40%

147. Price Elasticity of Supply:

Concept: Measures the responsiveness of quantity supplied to changes in price. 

Use Case: Analyzing producer behavior and supply response. 

Formula: Price Elasticity of Supply = (% Change in Quantity Supplied) / (% Change in Price) 

Example: Initial Quantity Supplied = 800 units, New Quantity Supplied = 1,200 units, Initial Price = 20 INR, New Price = 25 INR 

Calculation: ((1,200 - 800) / ((1,200 + 800) / 2)) / ((25 - 20) / ((25 + 20) / 2))

148. Return on Investment (ROI) - Education:

Concept: Measures the return generated from educational investments. 

Use Case: Assessing the impact of education on future earnings. 

Formula: ROI = (Increase in Earnings from Education / Cost of Education) * 100 

Example: Increase in Earnings from Education = 300,000 INR, Cost of Education = 50,000 INR Calculation: (300,000 / 50,000) * 100 = 600%

149. Sustainable Growth Rate - Retention Rate and ROA:

Concept: Measures the rate at which a company can grow while maintaining financial stability. 

Use Case: Evaluating growth potential using retention rate and return on assets. 

Formula: Sustainable Growth Rate = Retention Rate * Return on Assets 

Example: Retention Rate = 0.70 or 70%, Return on Assets = 0.10 or 10% 

Calculation: 0.70 * 0.10 = 0.07 or 7%

150. Profit Margin on Sales - Gross Method:

Concept: Measures the profit earned from sales before accounting for operating expenses. 

Use Case: Analyzing gross profitability. 

Formula: Profit Margin on Sales = (Gross Profit / Revenue) * 100 

Example: Gross Profit = 90,000 INR, Revenue = 250,000 INR 

Calculation: (90,000 / 250,000) * 100 = 36%

In conclusion, the realm of costing and financial analysis is a complex yet essential domain that underpins the success of businesses across industries. By delving into these formulas and practical examples, we've unveiled the power of data-driven decision-making. These insights allow us to optimize resource allocation, refine pricing strategies, assess investment opportunities, and navigate the intricate financial landscape.

Remember, these formulas are not merely mathematical constructs; they represent the language of financial performance and provide a roadmap to informed choices. Whether you're a seasoned financial professional or a budding entrepreneur, understanding and utilizing these tools can significantly elevate your ability to drive growth, enhance profitability, and secure the financial health of your ventures.

As you continue your journey in the world of costing and financial analysis, I encourage you to put these formulas into action, adapt them to your unique contexts, and continuously refine your skills. The integration of theory and practice, coupled with a keen eye for emerging trends, will undoubtedly empower you to make sound financial decisions and set your course toward sustained success.

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CMA Knowledge Team.