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CA Inter FM Formula Sheet

Computer Programming And Data Structures (Professor Jayashankar Telangana State

Agricultural University)

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CA Inter – Financial Management

FORMULA SHEET
Financial Planning and Analysis – Interest Coverage Ratio Payable TO Ratio
EBIT Annual Net Credit Purchases
Ratio Analysis = =
Interest Average Accounts Payables
LIQUIDITY RATIOS
Preference Dividend Coverage Ratio Payable Velocity
Current Ratio Earnings after tax Average Account Receivables
Current Assets = =
= Preference Dividend Average Daily Credit Sales
Current Liabilities
Equity Dividend Coverage Ratio 12 months / 52 weeks / 360 days
Quick Ratio EAT − Preference dividend =
Quick Assets = Receivables TO Ratio
= Equity Dividend
Current Liabilities PROFITABILITY RATIOS
Fixed Charges Coverage Ratio
Cash Ratio EBIT + Depreciation
Cash & Bank + Marketable securities = Gross Profit Ratio
= Interest + Repayment of Loan Gross Profit
Current Liabilities = x 100
Sales
Cash & Bank + Current investments TURNOVER (TO) RATIOS
= Net Profit Ratio
Current Liabilities Total Assets TO Ratio Net Profit / EAT
Net Working Capital Sales ∗ = x 100
= Sales
= Current Assets – Current Liabilities Total Assets Pre-tax Profit Ratio
Fixed Assets TO Ratio EBT
CAPITAL STRUCTURE RATIOS = x 100
Sales ∗ Sales
Equity Ratio =
Fixed Assets Operating Profit Ratio
Shareholder ′ s Equity
= Capital / Net Assets TO Ratio Operating Profit / EBIT
Net Assets Sales ∗ = x 100
= Sales
Debt Ratio Net Assets Cost of Goods Sold Ratio (COGS)
Total Debt
= Current Assets TO Ratio Cost of Goods Sold
Net Assets Sales ∗ = x 100
= Sales
Debt to Equity Ratio Current Assets
Total Outside Liability Operating Expenses Ratio
= Working Capital TO Ratio Admin. exp + Selling & Dist. OH
Shareholder ′ s Equity Sales ∗ = x 100
Total Debt = Sales
= Working Capital Operating Ratio
Shareholder ′ s Equity
Long term Debt Inventory TO Ratio COGS + Operating exp
= = x 100
Shareholder ′ s Equity Cost of Goods Sold Sales
=
Average Inventory Financial Expenses Ratio
Debt to Total Assets Financial exp
Total Outside Liability Raw Material Inventory TO Ratio = x 100
= Raw Material Consumed Sales
Total Assets =
Total Debt Average Raw Material Stock
OVERALL RETURN ON ASSETS/
=
Total Assets Receivables TO Ratio INVESTMENTS
Credit Sales
Proprietary Ratio = Return on Investments
Proprietary Fund Average Accounts Receivable Return / Profit / Earnings
= = x 100
Total Assets Receivables Velocity Investment
Average Account Receivables = Profitability x Investment TO Ratio
=
Average Daily Credit Sales
COVERAGE RATIOS Return on Assets
12 months / 52 weeks / 360 days Net Profit after taxes
Debt Service Coverage Ratio = = x 100
Earning available for debt service Receivables TO Ratio Average Total Assets #
=
Interest + Installments *Use COGS, if Sales not available #Alternatively, Average Tangible
Assets or Avg Fixed Assets can be used
Cash and Bank balances +Net Receivables + Market Securities
Basic Defense Interval =
Operating Expenses ÷No.of days

Preference Share Capital+Debentures+Other Borrowed funds

Capital Gearing Ratio =
Equity Share Capital+Reserves
Payables TO Ratio & Surplus−Losses
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Return on Assets can also be Earnings Yield or EP Ratio If floatation cost is incurred
calculated as: Earnings per Share (EPS) D1
Net Profit after taxes + Interest = x 100 ke = +g
Market Price per Share (MPS) P0 − F
= ∗
x 100
Average Total Assets
Market Value / Book Value per Share Estimation of Growth rate
Return on Total Assets Average share price (i) Average Method
EBIT (1 − t) =
Net worth ÷ No. of equity shares n D
g= √ 0−1
= x 100
Average Total Assets Closing share price
D n

= (ii) Gorden’s Growth Model

Return on Net Assets Net worth ÷ No. of equity shares
EBIT (1 − t) g=bxr
= x 100 Q Ratio
Average Net Assets Market Value of equity & liability Capital Asset Pricing Model Approach
= Ke = Rf + β (Rm – Rf)
Return on Capital Employed Estimated replacement cost of asset
Net Profit after taxes + Interest Market Value of a Company Cost of Retained Earnings
= x 100 =
Capital Employed Assets Replacement Cost Dividend Price Approach
EBIT D
Pre-tax = x 100 kr =
Capital Employed P
Cost of Capital
Post-tax =
EBIT (1−t)
x 100 Earnings Price Approach
Capital Employed Cost of Irredeemable Debentures EPS
I kr =
Return on Equity kd = (1 − t) P
PAT − Preference dividend NP
Growth Approach
= x 100 Cost of Redeemable Debentures D1
Net worth
(RV − NP) kr = +g
Profitability / Net Profit margin I (1 − t) + P0
kd = n
Profit / Net Income (RV + NP) Also Kr = Ke (1 – tp)(1 – f)
=
Sales / Revenue 2
If discount on issue or premium on Financing Decisions – Capital
Investment TO Ratio redemption is also tax deductible then,
Sales / Reveue (RV − NP) Structure
= I +
Investment kd = n (1 − t) Value of the firm, V = S + D
Asset TO Ratio (RV + NP) Where, S = Market value of Equity
Sales / Reveue 2 D = Market value of Debt
= Internal Rate of Return,
Assets EBIT
NPVL Also, V =
Capital TO Ratio IRR = L + (H − L) KO
Sales / Reveue NPVL − NPVH NI
= S=
Capital Amortised Value of a Debenture Ke
n
Equity Multiplier Ct Where, K0 = Overall cost of capital
VB = ∑
Investment / Assets / Capital (1 + k d ) NI = Earnings available for
= t=1
equity shareholders
Shareholder ′ s Equity
Where, C = Cash flows Ke= Equity Capitalisation Rate
Kd = Interest rate
RATIOS FROM OWNER’s POINT OF Cost of Irredeemable Preference Modigliani-Miller (MM) Approach
VIEW Shares Without tax –
PD Vg = Vu
Earnings per Share (EPS) kp =
Net profit available to equity holders P0 Where, Vg = Value of levered firm
= Vu = Value of unlevered firm
No. of equity shares outstanding Cost of Redeemable Preference Shares
(RV − NP) Debt
Dividend per Share (DPS) PD + K e = K o + (K o − K d )
kp = n Equity
Total Dividend paid to equity holders (RV + NP)
=
No. of equity shares outstanding 2
With tax –
Dividend Pay-out Ratio (DP) Cost of Equity, Vg = Vu + TB
DPS Where, TB = Tax benefit
= Dividend Price Approach
EPS D Debt
ke = K eg = K eu + (K eu − K d )
Price-Earnings Ratio (P/E Ratio) P0 Debt + Equity
Market Price per Share (MPS)
= Earnings Price Approach Where,
Earnings per Share (EPS) E
ke = Keg = Cost of equity in a levered Co.
Dividend and Earning Yield P Keu = Cost of equity in an unlevered Co
Dividend ±Change in share price
= Initial share price
Growth Approach / Gordon’s Model
D1
ke = +g WACC in a levered company
Dividend per Share (DPS) P0
= x 100 Kog = Keu (1 – tL)
Market Price per Share (MPS)
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Where, n
Ct CE coefficient
Keu = Cost of equity in an unlevered Co =∑ −I Certain cash flow
t = tax rate (1 + k)t 𝛼1 =
Debt t=1 Risky or expected cash flow
L= Where, C = Cash flows
Debt + Equity Dividend Decisions
k = Discount rate
n = Life of the project Growth, g = b x r
Financial Break-even point Where,
Prefrence dividend I = Investment
= Interest + b = Retention ratio
1 − tax rate Profitability Index (PI) r = Rate of return on investment
Indifference point Sum of discounted cash in flows
= MM Approach
(EBIT − I1 )(1 − t) (EBIT − I2 )(1 − t) Intial cash outlay ∗
= Market price of Shares
E1 E2
*also, total discounted cash outflow P1 + D1
P0 =
Internal Rate of Return (IRR) 1 + Ke
Financial Decisions - Leverages Where,
Degree of Operating Leverages (DOL) NPVL P1 = Price at the end of the period
= LR + x (HR − LR)
NPVL − NPVH D1 = Dividend at the end of the period
% change in EBIT
= PVL − CI Ke = Cost of equity
% change in Sales = LR + x (HR − LR)
PVL − PVH Value of the firm
Contribution (n + ∆n)P1 − I + E
= Vf or nP0 =
EBIT (1 + K e )
Risk Analysis in Capital Budgeting
Break-even point
Where,
STATISTICAL TECHNIQUES n = No. of shares in the beginning
Fixed Cost
in units, = Expected Net Cash Flows ∆n = No. of shares issued
Contribution per unit n I = Amount required for investment
Margin of Safety ENCF = ∑ NCFI x Pi E = Earnings during the period
Sales − BEP Sales i=1
= x 100 Walter’s Model
Sales Where, Pi = Probability of cash flows
EBIT Market price of Shares
NCFi = Net cash flows r
= D + (E − D)
Contribution Ke
Expected Net Present Value P=
n Ke
Degree of Financial Leverage (DFL) ENCF
ENPV = ∑ Where,
% change in EPS (1 + k)t E = Earnings per share
t=1
= D = Dividend per share
% change in EBIT Where, t = Period r = Internal rate of return
EBIT k = Discount rate
= Gordon’s Model
EBT Variance
n
2
Market price
Combined Leverage 𝜎 2 = ∑(NCFj − ENCF) x Pj E1 (1 − b) D0 (1 + g)
P0 = =
= DOL x DFL j=1 K e − br Ke − g
% change in EPS Standard Deviation Dividend Discount Model
= = √Variance = 𝜎
% change in Sales Intrinsic value of the stock
Contribution Coefficient of Variation = Sum of PV of future cash flows
= Standard Deviation = Sum of PV of Dividends
EBT =
Expected Cash Flow + PV of Stock Sale Price
D1 D2
Investment Decisions CONVENTIONAL TECHNIQUES
= +
(1 + K e )1 (1 + K e )2
+⋯
TRADITIONAL CAPITAL BUDGETING Dn
Net Present Value +
TECHNIQUES (1 + K e )n
n
NCF RVn
Payback Period NPV = ∑ −I +
(1 + k)t (1 + K e )n
Total initial capital investment t=1
= Graham & Dodd Model
Annual expected after tax NCF Where, k = Risk adjusted discount rate E
Accounting Rate of Return (ARR) Market price, P = m[D + ]
3
Risk Adjusted Discount Rate Where, m = multiplier
Average Annual net income RADR = Risk free rate + Risk premium
=
Investment Linter’s Model
Certainty Equivalent (CE) Approach D1 = D0 + [(E x Target payout) – D0] x
TIME ADJUSTED CAPITAL BUDGETING n Af
∝t x NCFt
TECHNIQUES NPV = ∑ −I Where, AF = Adjustment factor
(1 + k)t
t=1
Net Present Value (NPV)
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Management of Working Capital Trade Payables d

Estimated credit purchases
Unit-1: INTRODUCTION =
12 months / 365 days
Working Capital x Credit period allowed by suppliers
= Current Assets – Current Liabilities
Overheads (OH)
Operating Cycle Estimated Overheads
= R +W + F + D – C =
12 months / 360 days
Where, x Average time lag in payment of OH
R = Raw material storage period
W = Work-in-progress inventory Unit-2: TREASURY & CASH
holding period MANAGEMENT
F = Finished goods storage period Optimum Cash Balance
D = Debtors collection period
C = Credit period allowed by creditors 2U x P
=√
S
Raw Material (RM) Storage Period
Avg stock of RM Where,
= U = Annual cash disbursement
Avg cost of RM Consumption per day
P = Fixed cost per transaction
Work-in-Progress (WIP) inventory S = Opportunity cost of one rupee p.a.
holding period
Avg WIP inventory Unit-3: MANAGEMENT OF INVENTORY
=
Avg cost of Production per day
Economic Order Quantity
Finished Goods (FG) storage period
2A x O
Avg stock of FG =√
= C
Avg cost of Goods Sold per day
Where,
Debtors Collection period A = Annual demand of inventory
Avg Receivables
= O = Cost per Order
Avg Credit Sales per day C = Carrying cost per unit p.a.
Credit period allowed by creditors
Avg Payables Unit-4: MANAGEMENT OF
= RECEIVABLES
Avg Credit Purchases per day
Total Fixed Cost
Estimation of Current Assets = [Average Cost per unit
– Variable Cost per unit]
Raw Materials Inventory
Estimated production (units) x No. of units sold on credit under
= Present Policy
12 months / 365 days
x Estimated cost per unit Opportunity Cost
x Average RM storage period = Total Cost of Credit Sales
Collection period (Days)
Work-in-Progress Inventory x
Estimated production (units) 365 (or 360)
= Required Rate of Return
12 months / 365 days x
x Estimated WIP cost per unit 100
x Average WIP holding period Unit-5: MANAGEMENT OF PAYABLES
Finished Goods Nominal Cost of Payables Scan the
Estimated production (units) d 365 days
= = x QR Code To
12 months / 365 days 100 − d t
x Estimated cost of production per unit Enroll Now
x Average FG storage period Cost of Lost Cash Discount
365
Receivables (Debtors) 100 t
Estimated credit sales (units) =( ) −1
= 100 − d
12 months / 365 days
x Estimated cost of sales per unit Where,
x Average debtors collection period d = rate of discount
t = the reduction in the payment
Estimation of Current Liabilities period in days https://www.1fin.in
Estimated labour hours x Wage rate per hour support@indigolearn.com
Direst wages =
12 months / 365 days +91 9640-11111-0
x Average time lag in payment of wages

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