Compiled By: - CA. Aditya Kumar Maheshwari

(Operating Cash Expense + Interest + Tax) 365

Debt Equity = Ratio

Debt Equity

(Debt = Long Term Funds & Debentures))

Equity Ratio


Equity Equity + Total Debt

Capital Gearing Ratio


Debt Ratio


Proprietary Ratio



Total Debt or TOL Equity + Total Debt (TOL)


OP Ratio = Operating Profit Sales

Equity or Equity Total Assets Equity + TOL NP Ratio = Net Profit Sales



(Equity = (ESC+PSC+R&S))

Long Term Funds + PSC Equity Shareholder’s Fund

MV / BV Ratio

PE Ratio = or Price Earning Ratio

Market Value per Share Book Value per Share Market Price Per Share Earning Per Share

Du Pont Chart ROE = PAT * Sales * Net Assets Sales Net Assets Net Worth (NW) ROE =



Material Consumed Avg Stock of RM

Factory Cost Avg Cost of WIP

COGS Avg. Stock of FG

Capital TR =

Fixed Assets TR =


Sales `Avg. CE

Sales Avg. Fixed Assets

Sales Avg. WC

Debtors TR = Sales Avg. Debtors Earning Yield =

Creditors TR = Raw Material Purchase or COGS Avg. Creditors EPS*100 Market Value per Share

→ 1.1“÷” 5 times “=”

AV @ 10% for 5 yrs (AV5)

→ 1.1 “÷” 5times “=” “GT”

(Assumption: The Cash Flow is at the beginning of year)

→ 1.1+1*1.1+1*1.1+1*1.1+1


Future Value of Present Amt (FVn)



= Equity + LTL – Non Trade Invt. = FA + Trade Invt. + WC

PBIT = PBIT + Non Trade Expense – Non Trade Income

Time Value of Money

Ratio Analysis


ROA = PBIT or PAT Total Assets


N = No. of Period



R * (1+i) – 1 i

R = Equal Amt to be received / paid for n period i = Interest Rate per period

Present Value of Growing Perpetuity EMI

= =


k = Discounting Rate


g = Growth Rate

Total Principal Amt AV Factor of the period


365 Raw Material Turnover Ratio

WIP Holding Period (In Days)


365 WIP Turnover Ratio

FG Holding Period (In Months)


12 FG Turnover Ratio

Debtor Collection Period (In Weeks)


52 Debtor Turnover Ratio

Creditor Payment Period (In Months)


12 CreditorsTurnover Ratio

Operating Cycle

= (RM+WIP+FG) Storage Period (+) Debtors Collection Period (-) Creditors Payment Period

RM storage Period


Creditors Payment Period


Average A/c Payables Avg. credit purchase/ day

Debtors Collection Period


Average A/c Receivables Avg. Credit Sales per day

Finished Goods Storage Period

= Average stock of Finished goods Avg. cost of goods sold per day

IRR = Base Rate(Min) +

ARR (Accounting rate of Return)

D1 = D0 (1+G)

Indifference point: (Where EPS of 2 Alternatives are Same) (EBIT – I1)(1 − t) = (EBIT − I 2) (1 − t) E1 E2

Δ in Rate * Δ Desired(Amt) from Base Δ in Amount

(This is simple unitary method formula, practice IRR Calculation)

Ke = D1 P0

+ G

Average stock of RM Avg. cost of RM Consumption/day

Effective Cost = (Factoring Commission + Interest) – (Savings on Factoring) of Factoring Net amount Received from Factor

DCF (Discounted Cash Flow Method) / Growth Method:

Modigillani Miller Approach (Assuming no PSC): Ke = Ko + D (Ko – Kd) D = Debt or Loan E E = Equity

EBIT E 1 & E2 I 1 & I2 t

RM Storage Period (In Days)

Rm = Rate of return of Mkt Rf = Risk free return b = Beta

= Indifference point = Number of Equity Shares in Alternative 1 & 2 = Interest in Alternative 1 & 2 = Tax-rate

Overall Cost of Capital Ko = (Kd * D) + (Kp* P) + (Ke * E) D+P+E



ROE = PAT Equity or NW

Ke = Cost of equity

Ke = D1 D1 = Dividend of year 1 P0 P0 = Price of year 0 Earning Price Approach: Ke = E1 E1 = Earnings of year 1 P0 Realized Yield Approach: Ke = D1 + (P1-P0) P1 = Price of year 1 P0 Capital Asset Pricing Model Approach (CAPM):


I = Interest Rate per

Future Value of Annuity

RV = Redn Value

Ke = Rf + b ( Rm – Rf)

P0 (1 + i) P0 = Present Amt

Note: (Fin. Leverage Formula in Du Pont Chart is different.)

NP = Net proceeds/Mkt. Price

Cost of Equity / Retained Earnings: (a) Dividend Price Approach:

(f) → 1.1 “*” 4 times “=”




(Assumption: The Cash Flow is at the end of year)

Compounding of Rs 1: Future Value @ 10% for th 5 yr (FV5)

K p = Cost of Pref. Shares PD = Preference Dividend

Cost of Redeemable Preference Shares: PD + (RV – NP) Kp = Cost of capital Ke = N PD = Pref. Dividend (RV + NP) NP = Net Proceeds

(Assumption: The Cash Flow is at the end of Year)

ROE = Profit Margin * Assets Turnover * Financial Leverage

ROI or ROCE = * PBIT Capital Employed

Kp =


Discounting of Rs. 1: th [email protected]% for 5 yrs (PV5)

Future Annuity Value @ 10% for 5 years (FAV5)

Profit Margin * Assets Turnover * Equity Multiplier

Alternative Formula, ROE = EBIT * Sales * Sales Net Assets

Cost of Irredeemable Preference Shares:

Calculation Steps through Calculator:

(PAT - Preference Dividend) No of Equity Shares



Book Value Per Share = Net Worth-Pref Sh.Cap No. of Equity Shares

PV Ratio = Contribution Sales

DPS * 100 (Dividend Per Share) MPPS (Market Price Per Share)

Cost of Redeemable Debentures: I (1 – t) + (RV – NP) NP = Net proceeds Kd = N ___ RV = Redemption Value (RV + NP) N = No. of Yrs of Redemption

Turnover Ratios (TR) RM TR =

t = Tax rate NP = Net proceeds/market price

Working Capital Management

Quick Assets Cash Expenses per Day

Ratio Analysis

Ratio Analysis

Cash Expense per day =


Debt Service Coverage Ratio (DSCR) n Earnings Available for Debt Service or PAT + Dep + Interest Debt Service Commitments (Interest + Installment)

Kd = I (1 – t) NP

Working Capital Management

Absolute Liquidity or = (Cash & Bank +Mkt. Sec.) Cash Ratio CL Basic Defense Interval

Ratio Analysis

PBIT Interest

K d = Cost of Debt I = Interest amt

Investment Decision

Interest Coverage Ratio =

Cost of Irredeemable Debentures/Debt:




Payback period




Financial Leverage: (FL)

E = Equity

Alternative Formula: OL =

D = Debt P = PSC

Tandon Committee: Maximum Permissible Bank Finance =

Average Annual Net Income Initial Investment or Average Investment PV of Inflow (-)

PV of Outflow

Total initial capital investment Annual CFAT and other Annual Inflows PV of Inflow PV of Outflow EBIT or EBT

EBIT EBIT - Interest

% Change in EBIT % Change in Sales or Contribution



% Change in EBT % Change in EBIT



% Change in EBT or PAT or EPS Change in Sales %

75% of (CA-CL) or (75% of CA) – CL or {75% of (CA- CCA)} – CL Method 1

Method 2

Method 3

Where, CCA is Core / Permanent Current Assets

Baumol’s Economic Order Quantity Model Cash = Deposit transaction.


Cash Deposit = Optimum cash balance A = Annual cash disbursement

O =

Fixed cost per

C =

Cost of Rs. 1 p.a.


or Acid Test Ratio

Financing Decision

= QA or QA (QA = CA – Stock – Prapaid Exp.) or Liquid Ratio QL CL (QL = CL – Bank OD - CC)

Financing Decision

Quick Ratio

Dividend Coverage Ratio (CR) Pref. Div. CR Div CR Eq. Div. CR = = = ____PAT_______ PAT PAT – Pref. Div. Pref. Div Pref. Div & Eq. Div Equity Div.

Financing Decision


Working Capital Management


Time Value of Money

Ratio Analysis

Current Ratio

Ratio Analysis

Important Formulae: Financial Management (CA - IPCC)

Operating Leverage: (OL) Combined Leverage: (CL)

Cont. or EBIT

Contribution Cont. – Fixed Cost

Contribution or (OL * FL) EBT

ISCA chapter 1 my notes.pdf

Sales Net Assets Net Worth (NW). ROE = Profit Margin * Assets Turnover * Equity Multiplier. Alternative Formula,. ROE = EBIT * Sales * PAT. Sales Net Assets EBIT. ROE = Profit Margin * Assets Turnover * Financial Leverage. Note: (Fin. Leverage Formula in Du Pont Chart is different.) NPV = PV of Inflow (-) PV of Outflow.

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