EM302 Formula Sheet 2013

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Department of Electrical and Computer Engineering

Engineering Management 302


Supplementary Formulae Booklet
2013
Profit = Revenue - Expenses
Assets = Equity + Liabilities
Gross Margin =Revenue - Cost of Goods Sold
EBITDA = Gross Margin Operating Expenses
EBIT = EBITDA Depreciation and Amortization
Net Profit = EBIT Interest and Tax
Net Cashflow = Operations Cashflow + Investing Cashflow + Financial Cashflow
Current Assets

Current Ratio =

Current Liabilities
Working Capital = Current Assets Current Liabilities

Quick Ratio =

Debt Ratio =

Current Assets-Inventories
Current Liabilities
Total Debt
Total Assets

Times-Interest-Earned Ratio =

Revenue

Gross Profit Margin (GPM)=

Return on Assets (ROA) =

Return on Equity (ROE) =

Interest Expense
Net Income

Net Profit Margin (NPM) =

Return on Assets (ROA) =

EBIT

Gross Margin
Revenue
Net Income
Total Assets
Net Income (or EBIT)
Average of two years Total Assets

Net Income available to stock holders


Average of Two Years Equity

Average Fixed Cost (AFC) = Total Fixed Cost (TFC) / Total Units Produced
Unit Cost = Total Cost / Number of units produced

ENGINEERING MANAGEMENT 302

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Gross Margin = Revenue Total costs


Net profit After Tax (NPAT) = Profit Income tax
Contribution margin = Total revenue Total variable costs
Unit Contribution Margin = Price per unit - Ave Variable Cost per unit
Break Even = Quantity of output where Total revenue equals Total cost (zero profit)
Total Revenue (TR) =Total Cost = Total Fixed Cost (TFC) + Total Variable Cost (TVC)
Breakeven Volume (QBE) = Total Fixed Cost / (Price per unit - Ave Variable Cost per unit)
Price QBE = TFC + AVC QBE
Present Value Index (PVI) = NPV of net cash inflow / NPV of net investment
Simple interest:
Compound interest:

F P (1 iN )
F P(1 i) N

Where F = Future value, P = Present Value, i = Interest rate, and N = Number of years

Nominal Interest Rate:

inom rreal iinf

Where inom is the nominal interest, rreal is the real interest and iinf is inflation
Effective Annual Interest Rate (EAR): EAR i e (1 i / M ) 1
ie =Effective Interest Rate pa, i = Nominal Interest Rate pa, M = Number of interest periods pa
M

i d (1 i / CK ) C 1
Discrete Compounding:
id = Discrete Interest Rate per period, i = Nominal Interest Rate pa, C = Number of interest
periods per payment (deposit), K = Number of payments (deposits) per year

i ei / K 1

Continuous Compounding:
c
ic = Continuous Compounding Interest Rate per period, i = Nominal Interest Rate pa, K =
Number of payment periods per year
F
Average Inflation Rate or Compound Annual Growth Rate (CAGR): CAGR
P
Where F is the ending value, and P is the beginning value

Actual Dollars or Nominal Dollars or Current Dollars:


Fisher Equation: 1 i n (1 i r ) (1 ri )
Inflation Free Interest Rate (ir), Inflation Rate (ir) inflation rate
ENGINEERING MANAGEMENT 302

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1/ n

Pnom Preal 1 i n

F P (1 i ) N

Economic Equivalence:

0
N
P
Annuity:

PVA

P F (1 i ) N

N -1

1 i N 1
PA
i1 i N

Present Value of Annuity (PVA)


Net Present Value: NPV

FVA

(1 i ) N 1
FA
i

Future Value of Annuity (FVA)

A0
(1 i )

A1

1 i

A2

1 i

AN

1 i

1 i
An

n 0

Internal Rate of Return (IRR)

NPV

A0
(1 IRR)

A1

1 IRR

A2

1 IRR

AN

1 IRR

1 IRR
An

n 0

0 Or

1 i
n 1

An

A0 0

Annual worth analysis: Annual Equivalent costs = Capital costs + Operating costs
Capital Recovery Cost:

CR I S CRF i S

I is the purchase price of the asset, S is the salvage value after n years, CR is the annual
equivalent cost of ownership or the capital recovery cost, and

Capital Recovery Factor: CRF

i(1 i ) n
(1 i ) n 1

Minimum Attractive Rate of Return (MARR) = Discount Rate = Cost of Capital =


Required Return
Capital Structure or
Debt Ratio

ENGINEERING MANAGEMENT 302

Total Debt (D)


Total Capital (V)

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Market Value of the company is a function of Total Equity and the Total Debt, that is:
Market Value of Company
E

Amount of
Equity (E)

Amount of
Debt (D)

Total Amount of Capital


(V = E + D)

Beta of company

Cost of Equity

Cost of Equity

Ke =

Rf

Risk-free rate

Company Risk

(Rm Rf)

Market Risk Premium

Rf is risk-free rate, is measure of the risk of the company, Rm is the market rate, (Rm Rf) is
the Market Risk Premium

L
L
K d 1 K1 2
LT
LT

Cost of Debt

K n

K 2 n
LT

Ln = Amount of debt from each debt instrument, LT = L1 + L2 + + Ln = Total debt, Kn =


Interest paid on the debt taken out

E
D
K e K d (1 T c)
V
V

Weighted Average Cost of Capital (WACC): WACC

E = Amount of Equity, D = Amount of Debt, V = Total Capital used (ie. V = E + D), Ke.= Cost
of Equity, Kd = Cost of Debt, Tc = Corporate tax rate (being 30% in Australia)

Funding Costs

E
D
FundingCost Fa Fe Fd
V
V

Fe = Funding Cost of Equity, Fd


Straight Line
Depreciation Method

= Funding Cost of Debt

Depreciation Expense =

(Initial Cost Salvage Value)


Useful Life (years)

Declining Balance Depreciation Method


(Multiplier Previous Years Book Value)

Depreciation Expense =

Useful Life (years)

Depreciation on Unit basis:


Depreciation
Expenses =

Service Units Consumed in a year (Initial Cost Salvage Value)

Operating Net
Cashflow

Total service Units


= Net Income + Noncash expenses (ie. Depreciation)

ENGINEERING MANAGEMENT 302

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