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Business Arithmetic
In business, we use many different measurements to confirm our performance and to do comparisons. What follows are a series of
arithmetic calculations that are commonly used. I will be using the following Income Statement and Balance Sheet to illustrate the calculations.
Income Statement Balance Sheet
Assets (Tools) Liabilities (Outside Owners)
Sales $ 1,000,000 Cash $ 25,000 Accounts Payable $ 45,000
Cost of Goods $ 550,000 Accounts Receivable $ 110,000 Payroll Payable $ 20,000
Gross Profit $ 450,000 Inventory $ Taxes Payable $ 4,500
125,000
Total Current Assets $ 260,000 Total Current Liabilities $ 69,500
Less: Bank & Other LTD $ 75,000
Selling $ 100,000 Gross Fixed Assets $ 250,000 Total Liabilities $144,500
General Expense $ 250,000 Less: Accum Deprec $
(150,000)
Deprec Expense $ 35,000 Net Fixed Assets $ 100,000 Equity (Inside Owners)
Total Expense $ 385,000 Cap Investment $125,000
Profit before Tax $ 65,000 Deps & Other Assets $ Retned Earn $ 76,500
25,000
Income Tax $ 26,000 Total Assets $ 385,000 Current Period Earnings $ 39,000
Profit after Tax $ 39,000 Total Equity $240,500
Total Liabilities and Equity $385,000
It is one thing to know how to do the arithmetic and another to know how to use the results. In the following Table, I will illustrate
common measurements used in business. I want you to write in the blank cells on the right hand side of the page how you think the results of the
calculation could be used to confirm performance or to compare performance between time periods or between companies. Do you think the
number values generated are “good” or “bad”? As a manager, what could you do to make them “better”? How could you use the information to
make business decisions?
If you look on the Internet you can find sites that show these same business measures. Some will even have explanations of how they are
©William G. Donohoo 7/28/2014
, 2
used. Almost universally these sites merely show only definitions. If they show how to use the results it is almost always from the securities
analyst point of view, and not how a business manager would apply the information to improve the business You learn nothing by copying these
internet definitions into the blank cells. If this is what you choose to do, merely enter the URL and don’t bother copying the text from the site.
©William G. Donohoo 7/28/2014
Business Arithmetic
In business, we use many different measurements to confirm our performance and to do comparisons. What follows are a series of
arithmetic calculations that are commonly used. I will be using the following Income Statement and Balance Sheet to illustrate the calculations.
Income Statement Balance Sheet
Assets (Tools) Liabilities (Outside Owners)
Sales $ 1,000,000 Cash $ 25,000 Accounts Payable $ 45,000
Cost of Goods $ 550,000 Accounts Receivable $ 110,000 Payroll Payable $ 20,000
Gross Profit $ 450,000 Inventory $ Taxes Payable $ 4,500
125,000
Total Current Assets $ 260,000 Total Current Liabilities $ 69,500
Less: Bank & Other LTD $ 75,000
Selling $ 100,000 Gross Fixed Assets $ 250,000 Total Liabilities $144,500
General Expense $ 250,000 Less: Accum Deprec $
(150,000)
Deprec Expense $ 35,000 Net Fixed Assets $ 100,000 Equity (Inside Owners)
Total Expense $ 385,000 Cap Investment $125,000
Profit before Tax $ 65,000 Deps & Other Assets $ Retned Earn $ 76,500
25,000
Income Tax $ 26,000 Total Assets $ 385,000 Current Period Earnings $ 39,000
Profit after Tax $ 39,000 Total Equity $240,500
Total Liabilities and Equity $385,000
It is one thing to know how to do the arithmetic and another to know how to use the results. In the following Table, I will illustrate
common measurements used in business. I want you to write in the blank cells on the right hand side of the page how you think the results of the
calculation could be used to confirm performance or to compare performance between time periods or between companies. Do you think the
number values generated are “good” or “bad”? As a manager, what could you do to make them “better”? How could you use the information to
make business decisions?
If you look on the Internet you can find sites that show these same business measures. Some will even have explanations of how they are
©William G. Donohoo 7/28/2014
, 2
used. Almost universally these sites merely show only definitions. If they show how to use the results it is almost always from the securities
analyst point of view, and not how a business manager would apply the information to improve the business You learn nothing by copying these
internet definitions into the blank cells. If this is what you choose to do, merely enter the URL and don’t bother copying the text from the site.
©William G. Donohoo 7/28/2014
