Finance and Law Notes

Lecture 1: Accounting Definition


The Accounting Equation ASSETS = CAPITAL + LIABILITIES


Lecture 2: Vertical/Horizontal and Ratio Analysis

Operating Profit
ROCE = × 100
Return on Capital Employed Equity Funds + Non Current Liabilities
ROCE = OM × ATO
Revenue − COGS Gross Profit
Gross Profit Margin (GM) GM = × 100 = × 100
Revenue Revenue

Operating Profit
Operating Profit Margin (OM) OM = × 100
Revenue

Revenue
Net Asset Turnover (ATO) ATO =
Equity + Non Current Liabilities

Closing Inventory
Inventory Holding Period Inventory Holding Period = × 365
COGS

Trade Receivable
Collection Period Collection Period = × 365
Revenue

Trade Payables
Payment Period Payment Period = × 365
Revenue

Current Assets
Current Ratio Current Ratio =
Current Liabilities

Current Assets − Inventory
Acid Test Ratio Acid Test Ratio =
Current Liabilities

Non Current Liabilities + Overdraft + Pereference Shares
Gearing Ratio Gearing Ratio =
Ordinary Share Capital + Retained Earnings

Operating profit
Interest Cover Ratio Interest Cover =
Interest Payable


Lecture 3: Finance and Accounting

Closing Balance Closing Balance = Opening Balance ± Cashflow


Cashflow Cashflow = Receipts − Payments


Lecture 5: Marginal Costing and Short-term decision Making


Contribution Margin Contribution Margin = Sales Revenue − Variable Costs


Operating Profit Operating Profit = Contribution Margin − Fixed Costs