Summary Equations for Accountancy and Finance for Lawyers

ACCOUNTANCY EQUATIONS

BASIC

assets = liabilities + equity

equity = liabilities - assets

revenue - expenses = profit


MARGIN ANALYSIS

Gross profit margin = gross profit / revenue

Operating profit margin = operating profit / revenue

Net income margin = net income / revenue

ROA/ROE

Return on assets = net income / average total assets

Return on equity = net income / average total equity

>> average total assets/equity = (last year’s assets/equity + this year’s assets/equity) / 2 <<

TURNOVER RATIO
revenue / total assets

EPS

Earnings per share = net income attributable to common stock / average common shares outstanding

Price-to-earnings = share price / earnings per share

LIQUIDITY

Net working capital = current assets - current liabilities

Current ratio = current assets / current liabilities

Quick / acid test ratio
= (current assets - inventory) / current liabilities
= (cash + marketable securities + receivables) / current liabilities
= (cash + cash equivalents) / current liabilities.

SOLVENCY

Income statement analysis

, Interest cover ratio = (net income + interest expense + tax expense) / interest expense

Balance sheet analysis
Leverage ratio = assets / equity

Longterm debt to equity ratio = longterm debt / equity

Debt service analysis ratios

EBITDA = EBIT + depreciation

EBITDA cover ratio = EBITDA / interest expense

Interest cover ratio
= EBIT / interest expense

EBIT = net income + tax exp + interest exp

STANDARD DEVIATION




Step 1: Find the mean.
Step 2: For each data point, find the
square of its distance to the mean.
Step 3: Sum the values from Step 2.
Step 4: Divide by the number of data
points.
Step 5: Take the square root




STANDARD ERROR



PRESENT VALUE - MONEY
Present value = future value / (1 + r)n

- Future value of the cash flow (PV)
- Interest rate (r) or the discount rate
- Time period (n)

Annuity

𝐶𝐹1
𝐶𝐹 2
𝐶𝐹 𝑇
𝑃𝑉 = ( (1 + 𝑅) )+( 2 ) + ... + ( 𝑇 )
(1 + 𝑅) (1 + 𝑅)