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    Advanced Performance Management: Useful Formulas and Equations

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    taxathon thane
    This document lists several important formulas and equations used in advanced performance management. Some of the key formulas include: return on investment, which measures profitability relative to capital invested; residual income, which calculates profits in excess of a required rate of return; and economic value added, which measures profits over the firm's cost of capital. Other important metrics include contribution margin, breakeven analysis, internal rate of return, various profit margins, turnover ratios, and valuation ratios like price-earnings and dividend yield.

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    Advanced Performance Management: Useful Formulas and Equations

    Uploaded by

    taxathon thane
    57 views3 pages
    This document lists several important formulas and equations used in advanced performance management. Some of the key formulas include: return on investment, which measures profitability relative to capital invested; residual income, which calculates profits in excess of a required rate of return; and economic value added, which measures profits over the firm's cost of capital. Other important metrics include contribution margin, breakeven analysis, internal rate of return, various profit margins, turnover ratios, and valuation ratios like price-earnings and dividend yield.

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    This document lists several important formulas and equations used in advanced performance management. Some of the key formulas include: return on investment, which measures profitability relative to capital invested; residual income, which calculates profits in excess of a required rate of return; and economic value added, which measures profits over the firm's cost of capital. Other important metrics include contribution margin, breakeven analysis, internal rate of return, various profit margins, turnover ratios, and valuation ratios like price-earnings and dividend yield.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    57 views3 pages

    Advanced Performance Management: Useful Formulas and Equations

    Uploaded by

    taxathon thane
    This document lists several important formulas and equations used in advanced performance management. Some of the key formulas include: return on investment, which measures profitability relative to capital invested; residual income, which calculates profits in excess of a required rate of return; and economic value added, which measures profits over the firm's cost of capital. Other important metrics include contribution margin, breakeven analysis, internal rate of return, various profit margins, turnover ratios, and valuation ratios like price-earnings and dividend yield.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Advanced Performance Management

    Useful Formulas and Equations

    Return on investment = (Controllable profit / Divisional investment) x 100

    Residual Income = Net profits – (Total assets x Notional interest rate)

    Economic value added = Net operating profit after tax – (Weighted average cost of capital x
    Capital employed)

    Contribution per unit = Unit selling price – Unit variable cost

    Total contribution = Total sales – Total variable costs

    Breakeven (Units) = Fixed costs / Contribution per unit

    Breakeven (Revenue) = Fixed costs / (Contribution / Sales)

    Discount factor = 1 / (1 + r) n [r = discount rate; n = number of years]

    Perpetuity = Annual cash flow / Discount rate

    IRR = L + {(NL) / (NL – NH)} (H – L) [Where L is the lower discount rate; H is the higher
    discount rate; NL is the net present value at lower discount rate and NH is the net present value
    at higher discount rate.

    Gross profit margin = (Gross profit / Revenue) x 100

    Operating profit margin = (Operating profit / Revenue) x 100

    Net profit margin = (Net profit / Revenue) x 100

    Return on capital employed = (PBIT / Equity + Liabilities)

    Asset turnover = (Revenue / Total assets)


    Return on capital employed = Asset turnover x Operating profit margin

    Current ratio = Current assets / Current liabilities

    Quick ratio (Acid test) = (Current assets – Inventories) / Current liabilities

    Receivable days = (Trade receivables / Revenue) x 365 days

    Inventory days = (Inventory / Cost of sales) x 365 days

    Payable days = (Trade payables / Purchases) x 365 days

    Cash operating cycle = Inventory days + Receivable days – Payable days

    Gearing = Debt / Equity

    Gearing = Debt / (Debt + Equity)

    Working capital = Current assets – Current liabilities

    Dividend yield = (Dividend per share / Market price) x 100

    Dividend cover = Earnings per share / Dividend per share

    Price earnings (PE) ratio = Market price / Earnings per share

    Earnings yield = Earnings per share / Market price

    Earnings per share = Earnings after tax and preference dividends / No. of ordinary shares

    Learning curve: Y = axb

    [Where, y = cumulative average time per unit; x = cumulative output; a = time taken for 1 st unit;
    b = (log r / log 2); r = learning rate expressed in percentage]

    Minimum transfer price = Marginal cost + Lost contribution from internal transfer

    Altman Z score = 1.2 X1 + 1.4 X2 + 3.3 X3 + 0.6 X4 + 0.999 X5

    [Where: X1 = Working capital / Total assets;

    X2 = Retained earnings / Total assets;

    X3 = Profit before interest and tax / Total assets;

    X4 = Market value of equity / Book value of debt;

    X5 = Sales / Total assets]


    Net present value = Initial investment – Present value of all cash flows

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