Exam Tips
Formula & Proforma Sheet
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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)
|
 Â
××    ×× ×× ×× ×× ××    ×× ××  ×× |
           ××      ×× |
|
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 / EBTÂ Â Â Â Â Â Â Â Â Â or
= Operating Leverage × Financial Leverage
- Asset Turnover = Sales/Total Assets
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 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:Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Cost = K
Kd = I (1 – t)                          Interest = I
Tax = t
Cost of Equity                      Dividend = d
Ke = (D × 100) + g                Market Price = P
PÂ Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Growth Rate = g
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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
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|
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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