Formula Sheet of AFB

Mail: banishagupta2099@gmail.
com
Website: https://iibf.info
1
Mail: banishagupta2099@gmail.com
FORMULAS OF ABF
CALCULATION OF INTEREST AND ANNUITIES
1. Simple Interest = Principal × Interest Rate × Time
2. Compound Interest (Annually) = P (1+R)
3. CI (Quarterly) = P (1+R)4
𝑅 12
4. CI (Monthly) = 𝑃 (1 + )
12
Amount= Principal + Simple Interest (PRT)
Interest= Amount – Principle
𝐶×[(1+𝑖 )𝑛 −1]
5. FV (Ordinary Annuity) =
𝐼
FV = Future Value
C = Cash flow per period
I = interest rate
N = Number of payments
2
[(1+𝑖 )𝑛 −1]
6. PV (Ordinary Annuity) = 𝐶 × 𝑟 (1+)𝑛
Where:
PV = Future Value
C = Cash flow per period
I = interest rate
N = Number of payments
(1+𝑖 )n −1
7. FV (Annuity Due) = 𝐶 × × (1 + 𝑖)
𝑖
(1+𝑟)n
8. PV (Annuity Due) = 𝐶 × 𝑟(1+𝑟)𝑛 × (1 + 𝑟)
(1+𝑟)n
9. EMI = 𝑃 × 𝑟 (1+𝑟)𝑛 −1
Where:
EMI = Equated Monthly Installment
P = Principal (Amount of loan)
R = rate of interest per installment
N = No. of Installments in year
3
[(1+𝑖 )n−1]
10. F=𝐴 ×
𝑖
Where:
F = Future Value of Annuity
A = Annuity
I = Rate of Interest
N = Number of years
CALCULATION OF YTM
𝐶𝑜𝑢𝑝𝑜𝑛 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡
1. Current yield =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒
𝐼 𝐹
V0 = 𝑛𝑡=1 (1+𝑘𝑑 )𝑡
+(
1+𝑘𝑑 )𝑛
Where:
V0 = Intrinsic value of the bond

I = Annual Interest payable on the bond
F = Redeemable value of the bond
n = Maturity period of the bond
kd = cost of capital
4
2. YTM = Annual Interest (PVIFA kd per cent, years) +Maturity value

(PVIF kd, years)
(If kd is yield to maturity)
 𝑝𝑣𝑇
3. Duration of bond =
 𝑝𝑣
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒 𝑓𝑜𝑟 𝐵𝑜𝑛𝑑 𝑖𝑛 𝑃𝑒𝑟𝑖𝑜𝑑

4. IE =
% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑌𝑖𝑒𝑙𝑑 𝑡𝑜 𝑀𝑎𝑡𝑢𝑟𝑖𝑡𝑦 𝑓𝑜𝑟 𝐵𝑜𝑛𝑑𝑠
𝑌𝑇𝑀
5. IE = 𝐷 × 1+𝑌𝑇𝑀
IE = Interest Elasticity
D = Duration
5
CAPITAL BUDGETING
𝐼𝑛𝑖𝑡𝑖𝑎𝑙 𝑂𝑢𝑡𝑓𝑙𝑜𝑤
1. PAY BACK METHOD =
𝐴𝑛𝑛𝑢𝑎𝑙 𝐶𝑎𝑠ℎ 𝐼𝑛𝑓𝑙𝑜𝑤
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑟𝑜𝑓𝑖𝑡 𝐴𝑓𝑡𝑒𝑟 𝑇𝑎𝑥

2. Accounting rate of return =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
3. NPV = Sum of Present value of cash inflows - Initial cash outflow
𝑀
4. Present value =
(1+𝑟)𝑛
M = cash inflow
R = Discount rate
N = no. of years
[𝑁𝑃𝑉 ]
𝐿
5. IRR = 𝐿𝑅 + 𝑃𝑉 −𝑃𝑉 × 𝐻𝑅 − 𝐿𝑅
𝐿 𝐻
6
Where:
IRR = Internal rate of return
LR = Lower rate
NPVL = Net present value at lower rate
PVL = present value at lower rate
PVH = present value at higher rate
HR = Higher rate
LR = lower rate
DEPRECIATION AND ITS ACCOUNTING
𝐶𝑃−𝑆𝑉
1. SLM =
𝐸𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝐿𝑖𝑓𝑒 𝑜𝑓 𝐴𝑠𝑠𝑒𝑡 (𝑖𝑛 𝑦𝑒𝑎𝑟𝑠)
SLM = straight line method

CP= cost Price
SV= scrap value
2. WDV = previous year’s value of asset × percentage rate
WDV = written down value method of depreciation
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3. Double Declining Method of Depreciation
I. Calculate depreciation rate under SLM

II. RATE × 2
III. This rate is applied on written down value of asset
IV. In which year WDV is less than depreciation under SLM.
Double declining rate of depreciation is not applied. Whole
written down value of asset is charged as depreciation for that
year.
FOREIGN EXCHANGE ARITHMETIC
1. Cross Rate = If rate of currency A is known in terms of currency B and
rate of currency B is known in terms of currency C, we can derive the
rate of currency A in terms of currency C by cross multiplication =
𝐴 B A
× =
𝐵 𝐶 𝐶
2. Forward Points =
𝑆𝑝𝑜𝑡 𝑅𝑎𝑡𝑒×𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑡𝑖𝑎𝑙×𝐹𝑜𝑟𝑤𝑎𝑟𝑑 𝑃𝑒𝑟𝑖𝑜𝑑

100×𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐷𝑎𝑦𝑠
8
BALANCE SHEET EQUATION
1. Assets = Liabilities + Capital
2. Income = Revenue – Expenses
3. Sales = cost of sales + Gross profit
4. Sales = Stock in the beginning + Purchases +Direct Expenses – Stock at
the end + Gross profit
5. Gross profit = Sales – cost of sales
RATIOS
PROFITABILITY RATIOS
1. Return on investment
It measures how much the organization is earning on its capital

employed.
𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥 𝑎𝑛𝑑 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡

ROI = × 100
𝐼𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡 (𝑜𝑟 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑑)
9
2. Earnings Per Share (EPS)
❖ The ratio denotes per share profit of a company.

❖ It can be used to compare 2 different companies' profitability.)
❖ To calculate the ration only the no. of equity share is taken (and not of
preference shares).
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥 𝑎𝑛𝑑 𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑

EPS =
𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒𝑠
3. Price Earnings Ratio (PER)
❖ The ratio indicates the current market price vis-à-vis the earning
per share.
𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑡ℎ𝑒 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒

❖ PER =
𝐸𝑎𝑟𝑛𝑖𝑛𝑔 𝑃𝑒𝑟 𝑆ℎ𝑎𝑟𝑒
10
4. Return on equity
❖ This ratio provides information about the earnings, which the funds
put in by the promoters/shareholders. The ratio can be worked out
as under:
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
ROE = × 100
𝑂𝑤𝑛𝑒𝑑 𝐹𝑢𝑛𝑑𝑠 (𝑜𝑟 𝑡𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝑛𝑒𝑡 𝑤𝑜𝑟𝑡ℎ)
5. Gross Profit Ratio
❖ The gross profit is considered to be the surplus of sales over the cost
of goods sold and the ratio can be worked out as under:
𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡
Gross profit ratio = × 100
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
6. Net Profit Ratio
❖ The net profit is the surplus of gross profit after meeting other
expenses. The ratio can be worked out as under:
11
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡
Net Profit Ratio = × 100
𝑆𝑎𝑙𝑒𝑠
(The net profit could be before or after tax)
7. Operating Profit ratio
❖ The ratio denotes the margin of profit on the main operations

revealing the operational efficiency of the unit.
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑃𝑟𝑜𝑓𝑖𝑡
OPR =
× 100
(Profit minus net other income or profit from un-related activity)
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SHORT TERM SOLVENCY RATIO
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡
1. Current ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Current assets = Cash and cash equivalent + Trade Receivables + Stock +

Prepaid Expenses
Current Liabilities = Bank Overdraft + Creditors + Bills Payable +
Outstanding Expenses + Short term Liabilities
𝐿𝑖𝑞𝑢𝑖𝑑 𝐴𝑠𝑠𝑒𝑡
2. Liquid ratio =
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
Liquid Asset = Cash and cash equivalent + Receivables up to 6 months +

Quickly Realizable securities
OR Liquid asset = Current Assets – stock – prepaid expenses
13
LONG TERM SOLVENCY RATIO
𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡
1. Fixed asset Ratio =
𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚 𝐹𝑢𝑛𝑑𝑠
Fixed Asset = Net fixed asset and Trade Investment

Long term funds = Capital + Reserve + Long term loans
𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚 𝑂𝑢𝑡𝑠𝑖𝑑𝑒 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

2. Debt equity ratio =
𝑇𝑎𝑛𝑔𝑖𝑏𝑙𝑒 𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ
Long term outside Liabilities = Liabilities of long-term nature

Tangible net worth = Capital + Reserve and surplus – Intangible assets
3. Debtor Service Coverage Ratio =
𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 + 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 + 𝐴𝑛𝑛𝑢𝑎𝑙 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶ℎ𝑎𝑟𝑔𝑒𝑑 𝑜𝑛 𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚

𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠
𝐴𝑛𝑛𝑢𝑎𝑙 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶ℎ𝑎𝑟𝑔𝑒𝑑 𝑜𝑛 𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠 + 𝐴𝑛𝑛𝑢𝑎𝑙 𝐴𝑚𝑜𝑢𝑛𝑡
𝑜𝑓 𝐼𝑛𝑠𝑡𝑎𝑙𝑙𝑚𝑒𝑛𝑡
14
ACTIVITY RATIOS / TURNOVER RATIOS
1. Inventory turnover ratio =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑡𝑜𝑐𝑘
OR
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑆𝑎𝑙𝑒𝑠
Inventory turnover ratio =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑆𝑡𝑜𝑐𝑘
𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘+𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘

Average stock =
2
2. Debtor Turnover Ratio =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐷𝑒𝑏𝑡𝑜𝑟𝑠
3. Fixed Asset Turnover =
𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠
15
4. Current Assets or Working Capital Turnover
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
=
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑊𝑜𝑟𝑘𝑖𝑛𝑔 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
4. Debtors’ Velocity or Debt Collection Period
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐵𝑜𝑜𝑘 𝐷𝑒𝑏𝑡×𝑀𝑜𝑛𝑡ℎ𝑠 (𝑜𝑟 𝑑𝑎𝑦𝑠)𝑖𝑛 𝑎 𝑌𝑒𝑎𝑟

=
𝐶𝑟𝑒𝑑𝑖𝑡 𝑆𝑎𝑙𝑒𝑠 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑌𝑒𝑎𝑟
16

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Mail: banishagupta2099@gmail.

CALCULATION OF INTEREST AND ANNUITIES

1. Simple Interest = Principal × Interest Rate × Time

2. Compound Interest (Annually) = P (1+R)

V0 = Intrinsic value of the bond

2. YTM = Annual Interest (PVIFA kd per cent, years) +Maturity value

% 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑖𝑐𝑒 𝑓𝑜𝑟 𝐵𝑜𝑛𝑑 𝑖𝑛 𝑃𝑒𝑟𝑖𝑜𝑑

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑟𝑜𝑓𝑖𝑡 𝐴𝑓𝑡𝑒𝑟 𝑇𝑎𝑥

3. NPV = Sum of Present value of cash inflows - Initial cash outflow

DEPRECIATION AND ITS ACCOUNTING

SLM = straight line method

2. WDV = previous year’s value of asset × percentage rate

WDV = written down value method of depreciation

3. Double Declining Method of Depreciation

I. Calculate depreciation rate under SLM

FOREIGN EXCHANGE ARITHMETIC

1. Cross Rate = If rate of currency A is known in terms of currency B and

rate of currency B is known in terms of currency C, we can derive the

rate of currency A in terms of currency C by cross multiplication =

𝑆𝑝𝑜𝑡 𝑅𝑎𝑡𝑒×𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒 𝐷𝑖𝑓𝑓𝑒𝑟𝑒𝑛𝑡𝑖𝑎𝑙×𝐹𝑜𝑟𝑤𝑎𝑟𝑑 𝑃𝑒𝑟𝑖𝑜𝑑

BALANCE SHEET EQUATION

1. Assets = Liabilities + Capital

2. Income = Revenue – Expenses

3. Sales = cost of sales + Gross profit

4. Sales = Stock in the beginning + Purchases +Direct Expenses – Stock at

the end + Gross profit

5. Gross profit = Sales – cost of sales

It measures how much the organization is earning on its capital

𝑃𝑟𝑜𝑓𝑖𝑡 𝐵𝑒𝑓𝑜𝑟𝑒 𝑇𝑎𝑥 𝑎𝑛𝑑 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡

2. Earnings Per Share (EPS)

❖ The ratio denotes per share profit of a company.

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥 𝑎𝑛𝑑 𝑃𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑

3. Price Earnings Ratio (PER)

𝑀𝑎𝑟𝑘𝑒𝑡 𝑃𝑟𝑖𝑐𝑒 𝑜𝑓 𝑡ℎ𝑒 𝐸𝑞𝑢𝑖𝑡𝑦 𝑆ℎ𝑎𝑟𝑒

5. Gross Profit Ratio

6. Net Profit Ratio

(The net profit could be before or after tax)

7. Operating Profit ratio

❖ The ratio denotes the margin of profit on the main operations

(Profit minus net other income or profit from un-related activity)

SHORT TERM SOLVENCY RATIO

Current assets = Cash and cash equivalent + Trade Receivables + Stock +

Liquid Asset = Cash and cash equivalent + Receivables up to 6 months +

LONG TERM SOLVENCY RATIO

Fixed Asset = Net fixed asset and Trade Investment

𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚 𝑂𝑢𝑡𝑠𝑖𝑑𝑒 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Long term outside Liabilities = Liabilities of long-term nature

3. Debtor Service Coverage Ratio =

𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 + 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛 + 𝐴𝑛𝑛𝑢𝑎𝑙 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐶ℎ𝑎𝑟𝑔𝑒𝑑 𝑜𝑛 𝐿𝑜𝑛𝑔 𝑇𝑒𝑟𝑚

ACTIVITY RATIOS / TURNOVER RATIOS

𝑂𝑝𝑒𝑛𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘+𝐶𝑙𝑜𝑠𝑖𝑛𝑔 𝑆𝑡𝑜𝑐𝑘

4. Current Assets or Working Capital Turnover

4. Debtors’ Velocity or Debt Collection Period

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐵𝑜𝑜𝑘 𝐷𝑒𝑏𝑡×𝑀𝑜𝑛𝑡ℎ𝑠 (𝑜𝑟 𝑑𝑎𝑦𝑠)𝑖𝑛 𝑎 𝑌𝑒𝑎𝑟

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