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Formula & Proforma Sheet

 

Sub – Financial Management

Chapter 1

Working Capital

 Format of Working Capital

Particulars

Amount

Amount

Current AssetsStockRaw Material (At R.M. cost)

Work in Progress

Raw Material [100%]                              ××

Labour [50%]                                          ××

Overheads [50%]                                    ××

Finished Goods (Total Cost)

Debtors [At Selling Price]

Cash/Bank [Given]

Prepaid Expenses [Given]

Total Current Assets (A)

 

Current Liabilities

Creditors [R.M. Cost]

Outstanding Wages [Labour Cost]

Outstanding Overheads [O/H Cost]

Total Current Liabilities (B)

 

  

××

 

 

 

××

××

××

××

××

 

 

 

××

××

 

××

 

 

 

 

 

 

 

 

 

 

 

××

 

 

 

 

 

××

Working Capital 

 

××

 

Tips

  • For above all the common formula is

Quantity × Rate × Period

  • Period given in terms of months weekly or daily
  • For monthly take 12 months weekly either 52 weeks or 50 weeks and for daily 365 or 360 days
  • For domestic and expert type of sums the closing stock should be on total cost of goods sold
  • Other things are one and the same.

 

 

Chapter 2

Income Statement

 

Income Statement

Sales                            ××

Less: Variable Cost     ××

Contribution                ××

Less: Fixed Cost         ××

EBIT                           ××

Less: Tax                     ××

EAT                            ××

 

Formulas

  • Operating Leverage or Degree of operating leverage = Contribution/EBIT

 

  • Financial Leverage or Degree of financial leverage = EBIT/ EBT

 

  • Earning Per Share = EAT – Preference Dividend /No. of Equity Shares

 

  • P/V Ratio = Contribution/Sales × 100
  • Debt Equity Ratio = Long Term Debt/Equity

 

  • Combined Leverage = Contribution / EBT           or

= Operating Leverage × Financial Leverage

 

  • Asset Turnover = Sales/Total Assets

 

 Tips

  • Variable cost always in terms of % on sales
  • If P/V ratio is 70% i.e. sales Rs. 100/- contribution Rs. 70/- and variable cost Rs. 30/-.
  • Interest on loan means debentures & other loan funds.
  • Fixed cost always remains the same.

 

Chapter 3

Receivables Management

Formats

A.    When Fixed cost is given

 

Particulars

Existing

OP – I

OP – II

SalesLess:Variables CostContribution

Less: Fixed Cost

Profits (A)

Total Cost = FC + VC

Investment in Receivables Cost

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

Opportunity CostBad Debts

Other Costs

Total Cost (B)

Net Benefit (A – B)

Incremental Benefits

 

××

××

××

××

××

 

××

××

××

××

××

××

 

××

××

××

××

××

××

 

Tips

  • The incremental benefits more option is to be selected
  • Investment in receivables is to be calculated on total cost (FC + VC)
  • Opportunity cost is to be calculated on investment in receivables.
  • Bad Debts is to be calculated on total sales.

 

B.     When Fixed Cost is not given

Particulars

Existing

OP – I

OP – II

SalesLess: Variable CostContribution  (A)

Investment in Receivables Cost

××

××

××

××

××

××

××

××

××

××

××

××

Opportunity CostBad DebtsOther Costs

Total Cost (B)

Net Benefits (A – B)

Incremental Benefits

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

 

Tips

  • Investments in receivables is to be calculated on sales
  • Opportunity cost is to be calculated in investment in receivables
  • Remaining things are one and the same.

 

Chapter 4

Cost of Capital

 

Formula

 

Cost of Debt:                         Cost = K

Kd = I (1 – t)                           Interest = I

Tax = t

Cost of Equity                       Dividend = d

Ke = (D × 100) + g                  Market Price = P

P                                     Growth Rate = g

 

Cost of Performance always the given rate because it is always after tax.

Statement of WACC

 

Amount

Proportion

Cost of capital

WACC

Equity

××

××%

Ke

××

Preference

××

××%

Given

××

Loan

××

××%

Kd

××

××

100%

××

 

WACC = Proportion Cost of Capital

100

 

Further Formula

  • EPS = EAT – Preference Dividend/No. of Equity Shares
  • Debt/Equity Ratio = Long Term Debt/Equity

 

Chapter 5

Capital Structure Planning

 

There are two formats

  • Capital Structure
  • EPS

 

The plan (option ) having highest EPS is going to be selected for the purpose of investment.

  • Proforma of Capital Structure

Particulars

I

II

III

Equity Share CapitalExisting (if given)

New

Preference Capital

Existing (if given)

New

Debentures

Existing (if given)

New

Retained Earnings (if given)

 

××

××

 

××

××

 

××

××

××

 

××

××

 

××

××

 

××

××

××

 

××

××

 

××

××

 

××

××

××

Total

××

××

××

No. of Equity Shares (B)

××

 

××

 

××

 

 

  • Proforma of E.P.S.

Particulars

I

II

III

EBITLess: Interest on Loans

EBT

Less: Tax

EAT

Less: Preference Dividend

Earnings available for Equity Holders (A)

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

EPS = A/BD.P.S. = E.P.S. × Dividend Payout

××

××

××

××

××

××

 

Tips

  • If statement of capital structure is given no need to prepare.
  • Dividend payout is given find D.P.S. only
  • For indifference point equate two E.P.S. for two different plan.
  • For Break even point take E.P.S. zero & apply reverse way to calculate EBIT.

 

 

Chapter 6

Cash Management Format

 

Particulars

I

II

III

Opening BalanceReceipts

Cash Sales (working notes)

Collection from Debtors (Working Notes)

Deferred Receipts

××

××

××

××

××

××

××

××

××

××

××

××

××

××

××

Total Receipts

××

××

××

PaymentsPayments to creditors

Payments of Expenses

Other payment

Total Payment

Balance (Receipts – Payments)

 

××

××

××

××

××

 

××

××

××

××

××

 

××

××

××

××

××

 

Tips

  • Closing balance of one month become opening of other month.
  • Following subsequent, next and forward means one and the same.
  • Arrears outstanding means one and the same i.e. in next month.
  • Temporary loan is to be paid in next possible option.
  • Existing notes to be prepare wherever required.

Chapter 7

Capital Budgeting

Decision Criteria

Pay Back Period

Net Present Value

Profitability Index

A.R.R.

Payback Profitability

I.R.R.

Discounted Payback

 

Formulas

Payback Period Method

a.      If cash flows are not same
= No. of years + Required Amount × 12

Next Inflow

b.      If cash flows are same for all years
Payback Period = Cost of Project / Initial outlay

1        year’s inflow

Net present value = Present value of Inflow – Initial Outlay

Profitability Index  or Benefit Cost Ratio = Present value of Inflow

Initial Outlay

A.R.R.

a.      Accounting Rate of Returns or A.R.R. (based on original investment)
= Average Annual PAT × 100

Original Investment

b.      Average Rate of Returns or A.R.R. ( based on Average Investment)
= Average Investment [Original Investment (if scrap is not given)]

2

OR

= Original Investment – Scrap + Scrap + Working Capital (if any)

2

Payback Profitability = Average Annual Cash Inflow [ Estimated Life – Payback Period]

Internal Rate of Return = L.R. + P.V. at L.R. – Initial Outlay × Difference in Rates

P.V. at L.R. – P.V. at H.R.

L.R. = Lower Rate

H.R. = Higher Rate

P.V. = Present Value

 

Discounted Payback = No. of years + Required Amount × 12

Next year’s P.V.

 

Tips

The project cost, initial outlay, investment all are one and the same

PBDT = Profit Before Depreciation & Tax

CFBDT = Cash Flow Before Depreciation & Tax = PBDT

CFAT = Cash Flow After Tax & Depreciation = PAT

Cash Flows = Cash inflows = PAT + Depreciation

PAT + Depreciation also called as

Profit After Tax But Before Depreciation

If sales & other costs are given then PBDT is to be calculated as under

PBDT = Sales – Variable Cost – Fixed Cost – Other Costs (Excluding Depreciation)

To calculate Depreciation the formula is

Depreciation = Original Cost – Estimated Scrap

Estimated Life

If estimated life is not given then depreciation rate is given and accordingly decide the estimated life.

e.g. If 10% given the life is 10 years

If 25% given the life is 5 years

If working capital given along with scrap or salvage value then both working capital & scrap added to last year’s inflow & last year’s P.V. factor us applied to both.

For NPV calculation the working capital should be added to the initial outlay.

If present value factor is not given assumed to be 10%.

Mostly taxes is given, but if not given then in the question they mention about assumption & then put assumption and take tax 50% but if nothing is given then ignore taxation.

Payback period in years & months or only in terms of years also be calculated.

 

                                                                         

 

 

 

 

 

 

 

 

 

 

 

 

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