Accounting is the systematic process of analysing, interpreting, communicating financial information to enable users make decisions.





As an accountant or Accounting students, there are certain accounting formulas and ratios you should know. The following are some of them:





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Accounting Rate of Return

Net Income / Initial Investment





Accounts Payable Turnover

Cost of Goods Sold / Average Accounts Payable





Accounts receivable turnover

credit sales / average gross accounts receivables





Accounts Receivable Turnover Ratio

Net Credit Sales/Avg Net Accounts Receivable





Accounts receivable collection period

Investment in Accounts Receivable / Daily Sales





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Accumulated Depreciation

Cost- Salvage Value/Years





Activity Ratios (list 10)

1.Accounts receivable turnover

2.Accounts payable turnover

3.Inventory turnover

4.Days sales in receivables

5.Days sales in inventory

6.Days purchases in payables

7.Operating cycle

8.Cash cycle

9.Total asset turnover

10.Fixed asset turnover





Asset Turnover

Total Revenue / Average Total Assets





Average Collection Period

365 / Receivables Turnover









Average costs per sale

Total Cost/Sales





Average Days to Sell Inventory

365 / Inventory Turnover





Average Issuance Price

A balance of common shares account/acquisition





Balance Sheet

Assets = Liabilities + Stockholders’ Equity





Basic Earnings Per Share (EPS)

Net Income – Preferred Dividends/Weighted-Average Common Shares Outstanding





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Book Value Per Common Share

Stockholder’s Equity Applicable to Common Shares/Number of Common Shares Outstanding





Book Value Per Preferred Share

Stockholder’s Equity Applicable to Preferred Shares/Number of Preferred Shares Outstanding





Book value per share

(total stockholders’ equity – preferred equity) /

number of common shares outstanding





Break – even point

Break Even = Fixed Cost/Contribution Margin





Breakeven point in dollars

fixed costs / (unit contribution margin/selling price)





Breakeven Sales

Fixed Costs / Contribution Margin Ratio





Breakeven Units

Fixed Costs / CMPU





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Capital Acquisitions Ratio

Cash Flow from Operating Activities / Cash Paid for Property, Plant, and Equipment





Cash coverage ratio

EBIT + depreciation / interest





Cash cycle

Operating cycle – days purchases in payables





Cash ratio

(cash + marketable securities) / current liabilities





Cash to expense ratio

Cash-To-Expense Ratio = (Investment in Cash + Investment in Marketable Securities) / (Annual Operating Expense/365 days)





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COGM Formula

BWIP

DM used:

Beg RM

(+) Purchases

(=) Available

(-) End RM

(=) DM used in production

(+) DL

(+) MOH

(=) Total Manufacturing Costs

(+) BWIP

(-) EWIP

(=) COGM





COGS Formula

Beg FG Inventory

(+) COGM

(-) End FG Inventory

(=) COGS





Computing Interest

Principal of the Note x Annual Interest Rate x Time Expressed In Fraction of Year = Interest





Contribution Margin

Sales Revenue – Variable Costs

Contribution Margin Ratio

Contribution Margin / Sales Revenue

Conversion Costs

DL + MOH





Cost/volume/profit analysis (list 4)

1.Breakeven point in units

2.Breakeven point in dollars

3.Margin of safety

4.Margin of safety ratio





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Current Ratio

Current Assets / Current Liabilities





Days In Inventory

365/Inventory Turnover





Days purchases in payables

average payables / (purchase / 365)





Days’ sales in inventory

365 days / inventory turnover or

Investment in Inventory / Cost of Daily Sales





Days sales in receivables

365 days/receivables turnovers or

average accounts receivable / (credit sales / 365)





Days’ Sales Uncollected

Accounts Receivable/Net Sales x 365





Debt coverage ratio

Earnings BEfore Interest and Taxes for a Given Period /(Interest Expense for a Given Period + Principal Payments on Debt for a Given Period)





Debt to Asset Ratio

Total Liabilities/Total Assets





Debt-to-Equity

Total Liabilities/ Total Equity





Degree of financial leverage

% change in net income / % change in EBIT,

or

= EBIT / EBT





Degree of operating leverage

= % change in EBIT / % change in sales

or

= contribution margin / EBIT





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Depletion Cost

Unit Depletion Rate X Number of Units Extracted





Depletion Expense

Depletion Per Unit x Units Extracted and Sold In Period





Depletion Per Unit

Cost – Salvage Value/ Total Units of Capacity





Depreciation

(Initial Investment + Salvage Value) / Useful life





Depreciation Cost

Cost – Salvage Value





Diluted EPS

(net income – preferred dividends) / diluted weighted average common shares outstanding





Direct Labor Efficiency Variance

SR * (SH-AH)





Direct Labor Rate Variance

AH x (SR-AR)





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Direct Materials Price Variance

AQ x (SP-AP)





Direct Materials Quantity Variance

SP x (SQ – AQ)





Dividend payout ratio

cash dividends / net income





Dividend yield

Annual dividends per share / market price per share





Double Declining Depreciation Expense Method

( 2/useful life) X Book Value Start





Earnings Per Share

Net Income – Preferred Dividends/ Average number of common shares outstanding





Earnings yield

EPS / current market price per common share





EBITDA margin

EBITDA / sales





EBITDA ratio

enterprise value / EBITDA





Price elasticity of demand

E = [change in quantity / (average of quantities)] / [change in price / (average of prices)]





Enterprise value

total market value of the stock + book value of all liabilities – cash





Equity multiplier

total assets / total equity





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Financial leverage ratio

= assets / equity





Fixed asset turnover

= sales / average net plant, property and equipment





Fixed charge coverage

= earnings before fixed charges and taxes / fixed charges fixed charges include interest, required principal repayment, and leases

fixed charges include

include interest, required principal repayment, and leases

Interest coverage (times interest earned)

= EBIT / interest expense k(3) Cash flow to fixed charges = (cash from operations + fixed charges + tax payments) /

fixed charges. Note: cash from operations is after-tax.





Fixed-asset turnover

Fixed-Asset Turnover = Annual Sales / Investment in Property, Plant, and Equipment





Good Will

Purchase Cost – Fair Value of Identifiable Assets





Gross profit margin percentage

gross profit / sales





Gross Profit Percentage

(Net Sales Revenue – COGS) / Net Sales Revenue





Income Statement

Revenues – Expenses





Inventory Turnover

COGS / Average Inventory





Invest coverage ratio

Invest Coverage Ratio = Earnings BEfore Interest and Taxes for a Given Period / Interest Expense for a Given Period





Investment Turnover

Sales Revenue / Average Invested Assets





Leverage

Avg Totals Assets/ Avg shareholders equity





Leverage ratios (list 8)

1.Degree of financial leverage

2.Financial leverage ratio

3.Total debt to total capital ratio

4.Debt to equity ratio

5.Long-term debt to equity

6.Debt to total assets ratio

7.Fixed charge coverage

8. Interest coverage (times interest earned)





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Liquidity ratios (list 5)

Net working capital

Current ratio

Cash ratio

Cash flow ratio

Net working capital ratio





Long-term debt to equity ratio

= (total debt – current liabilities) / equity





Margin of safety

= planned sales – breakeven sales





Margin of safety ratio

= margin of safety / planned sales





Market Ratios (list 10)

1.Market-to-book ratio

2.Price earnings ratio

3.Price to EBITDA ratio

4.Book value per share

5.Basic EPS

6.Diluted EPS

7.Earnings yield

8.Dividend yield

9.Dividend payout ratio

10.Shareholder return





Market-to-book ratio

= current stock price / book value per share





Measuring Value of A company

= Number Of Shares Issued X Share Price at Date





Minimum Acceptable Profit

Hurdle Rate * Average Invested Assets





Net Book Value

= Acquisition Cost – Accumulated Depreciation





Net Cash Flow

Net Income + Depreciation





Net Present Value

(Annual cash flows * PV of $1) – Initial Investment





Net Profit Margin

Net Income / Net Sales (Operating Revenues)





Net profit margin x total asset turnover x equity multiplier (DuPont model)



return on common equity

or

=(net income / sales) x (sales / average total assets) x

(average total assets) / average equity





Net working capital

current assets – current liabilities





Meaning Of Sales In Accounting ALSO READ:





Net working capital ratio

net working capital / total assets





Operating profit margin percentage

operating income / sales





P / E Ratio

Market Price Per Share /Earnings per share





Partial Income Statement

Sales

less: COGS

(=) Gross Margin

less: Operating Expenses

(=) Net Operating Income





Payback Period

Initial Investment / Annual Cash Flow





Payout Ratio/ Cash Dividends Declares/ Free Cash Flow

= Net Cash From Operating Activities –

Capital Expenditures – Cash Dividends





PE ratio

market price per share of common stock/earnings per share





Performance measures (list 2)

ROI

RI





Price Earnings Ratio

market price per share / EPS





Price to EBITDA ratio

market price per share / EBITDA per share





Price-sales ratio

price per share / sales per share





Prime Costs

DM + DL





Profit Margin

net income / sales





Profitability Analysis Ratios (list 7)

1.ROA

2.ROE

3.Net profit margin x total asset turnover x equity multiplier (DuPont model)

4.Gross profit margin percentage

5.Operating profit margin percentage

6.Net profit margin percentage

7.Sustainable growth rate





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Profitability Index

PV of Future Cash Flows / Initial Investment





Profitability Ratios -(List 6)

(1) Gross profit margin percentage

(2) Operating profit margin percentage

(3) Net profit margin percentage

(4) EBITDA margin

(5)ROA

(6) ROE





Quality of Income Ratio

Cash Flow from Operating Activities / Net Income





Quick Ratio (Acid-Test Ratio)

(cash + marketable securities + accounts receivable) /

current liabilities





Rate of Return on Assets

Net Income / Average Total Assets





Receivables Turnover

sales / accounts receivable





Residual Income

Income of business unit – (Assets of business unit x required rate of return)

Note: “Income” means operating income unless otherwise noted





Retention ratio

additions to retained earnings / net income = 1 – payout ratio





Return on Assets (ROA)

= Net profit margin x total asset turnover

or

= (net income / sales) x (sales / average total assets)

or

= net income / average total assets





Return on equity (ROE)

= Profit Margin X Asset turnover X Leverage

= Current Ratio

=ROA x financial leverage

or

= (net income / average total assets) x (average total assets / average equity )

or

= net income / average equity





Difference Between Cost And Price ALSO READ:





ROI (Division)

Net Operating Income / Average Invested Assets





ROI (Multiplication)

Profit Margin * Investment Turnover





ROI

Income of business unit / Assets of business unit





Shareholder return

(ending stock price – beginning stock price + annual dividends per share) / beginning stock price





Special Order Formula

Special Order Price

(-) Variable Manufacturing Costs

(-) Variable Selling and Administrative

(-) Additional Fixed Costs

(=) Net Extra Income per unit





Statement of Cash Flows

+/- Cash Flows from Operating Activities

+/- Cash Flows from Investing Activities

+/- Cash Flows from Financing Activities

= Net Change in Cash

+/- Cash Flows from Operating Activities

+/- Cash Flows from Investing Activities

+/- Cash Flows from Financing Activities

= Net Change in Cash





Statement of Retained Earnings

Retained Earnings (beginning) + Net Income – Dividends





Straight Line Depreciation Expense Method

Depreciation Cost / Useful Life





Straight-Line Depreciation

Cost – Salvage Value/ Useful Life in Periods





Sustainable growth rate

= (1- dividend payout ratio) x ROE





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Target Operating Income Sales (TIS)

(FC + Target Operating Income) / CMR





Target Operating Income Units (TIU)

(FC + Target Operating Income) / CMPU





The required rate of return for equity

Re = Rf + Risk Premium





The required rate of reurn for debt

Rd = Rf + Risk Premium





Times Interest Earned Ratio

EBIT / interest or

(Net Income + Interest Expense + Income Tax Expense) / (Interest Expense)





Total asset turnover

sales / average total assets





Total debt ratio

total assets – total equity / total assets





Total debt to total capital ratio

(current liabilities + long term liabilities) / (total debt + total equity)





Total Manufacturing Costs

DM + DL + MOH





Transfer Price

Variable Costs + Opportunity Cost





Unit Depletion Rate

= (Total Cost – Salvage Value )/units in resource





How Accounting Was Done Before Spreadsheet ALSO READ:





Units Of Activity Depreciation Expense Method

= (Depreciation Cost / Total Units Of activity)

X

Units of Activity used in year





Working Capital

= Current Assets – Current Liabilities.





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