Economic formulas

Return on Assets (ROA) = Operating proft before interest (EBIT) x 100 / Assets

EBIT (or Proft) Margin = Operating proft before interest (EBIT) x 100 / Reenue

Asset Turnoer (ti!es) = Reenue / Assets

Return on Assets = Proft !argin x Asset turnoer

Return on E"uit# (ROE) = $et proft x 100 / E"uit#

Interest %&arge on 'ebt fnan%ing = interest %ost x 100 / tota( 'ebt

)earing ratio = *ebt / e"uit#

Proft ratio = Operating proft before interest x 100/ reenue

Asset turnoer ratio = reenue / assets

+afet# !argin= (sa(es , brea- een reenue) x100/sa(es re!e!ber to put t&e
bra%-ets

Brea- een reenue = fxe' %ost /%ontribution !argin ratio.100
/ixe' %ost is (ot&er expenses 0 sta1 0 'epre%iations)
2ontribution !argin ratio = )ross proft x 100/ reenue

E"uit# 0 'ebt = (iabi(ities

+o(en%# = e"uit# x 100/ (iabi(ities

In'ex (or in'i%es) for #ear = a(ue in #ear x 100/a(ue in t&e frst #ear of t&e
ana(#sis
The frst year is reviewed is always fxed in 100
Is the same for Cost indices (instead of value in year use the
cost of that year)

+afet# !argin = (sa(es , brea- een reenue) x 100/ sa(es re!e!ber to put t&e
bra%-ets

/ix %ost ratio = )ross proft/(fxe' 2ost)
/ixe' %ost is (ot&er expenses 0 sta1 %ost 0 'epre%iations)
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When the teacher asks for Proftability and Earning potential, you have to
calculate this ones, the ones in red are the basic ones to pass the test,
and if you have the time and want to get a 12... do all the others as well.
Proftability
ROA 3
EBIT (or proft) !argin 3
Asset turnoer
ROE after tax
Interest %&arge on 'ebt fnan%ing
)earing ratio
Earning potential
EBIT !argin 3
2ontribution ratio
Reenue in'i%es
2ost in'i%es (2O+)
2ost in'i%es (ot&er externa( %ost)
2ost in'i%es (e!p(o#ee %osts)
2ost in'i%es ('epre%iation)
/ixe' %ost ratio
Brea- een reenue
+afet# !argin

A(so t&e tea%&er an' t&e boo-4 -eep %&anging na!es of t&e t&ings4 &ope t&is 5ou('
&e(p
ross proft is t&e sa!e t&an contribution !" think#
$evenue is t&e sa!e t&an sales an' is t&e sa!e t&an %urnover
&iabilities and 'ssets are t&e sa!e nu!ber4 if is not gien in t&e exer%ise4 #ou
%an %a(%u(ate it6 e"uit# 0 'ebt = (iabi(ities (or assets)
/or t&e 5ritten "uestions
$eturn on assets 6 +&o5s &o5 proftab(e a %o!pan# is re(atie to its tota( assets7
ROA gies an i'ea as to &o5 e8%ient !anage!ent is at using its assets to
generate earnings7 +o!eti!es t&is is referre' to as 9return on inest!ent97
T&e &ig&er t&e ROA nu!ber4 t&e better4 be%ause t&e %o!pan# is earning
!ore !one# on (ess inest!ent an' !eans t&e %o!pan# is better at %onerting its
inest!ent into proft7
E("% !or proft# )argin6 It:s an in'i%ator of t&e %o!pan# %apa%it# to -eep part of
t&e reenue(sa(es) as proft7 ;e(ps ea(uate &o5 a %o!pan# &as gro5n oer
ti!e7 Proft !argin is t&e per%entage of se((ing pri%e t&at turne' into proft7
'sset %urnover6 Is &o5 !an# ti!es t&e ineste' %apita( &as generate' reenue7
!easures t&e e8%ien%# of a %o!pan#:s use of its Assets in generating sa(es
reenue or sa(es in%o!e to t&e %o!pan#7 T&e a!ount of +a(es generate' for
eer# 'o((ar:s 5ort& of assets7 T&e &ig&er t&e better7
$eturn on e*uity !$+E#, ROE s&o5s &o5 5e(( a %o!pan# uses inest!ent fun's
to generate earnings gro5t&7 ROEs bet5een 1<3 an' =03 are genera((#
%onsi'ere' goo'7
-ontribution )argin6 T&e %ontribution !argin is t&e ex%ess a!ount re!aining4
after t&e ariab(e %osts &ae been 'e'u%te'
(reak.even revenue, T&e brea-,een represents t&e sa(es a!ount t&at is
re"uire' to %oer tota( %osts7 Proft at brea-,een is >ero7 is t&e point at 5&i%&
%ost or expenses an' reenue are e"ua(6 t&ere is no net (oss or gain
earing $atio, !easures t&e proportion of fr! 'ebt to e"uit#7 5&ere a &ig&
gearing ratio represents a &ig& proportion of 'ebt to e"uit#4 an' a (o5 gearing
ratio represents a (o5 proportion of 'ebt to e"uit#
/olvency, Is t&e abi(it# of a business to &ae enoug& assets to %oer its (iabi(ities7
it:s t&e 2o!pan# %apa%it# to %arr# (osses 5it&out (osing t&e %apabi(it# to pa#
supp(iers as %re'its %o!e 'ue7