Essential Financial Formulas and Banking Metrics

Posted on Jun 23, 2026 in Accounting and Finance

Unit 1: Interest and Returns

  • Simple Interest: I = P × i × t or I = P × i × days/360
  • Final Value: FV = P + I or FV = P(1 + i × t)
  • Compound Interest: FV = P(1 + i)^n
  • Present Value: PV = FV / (1 + i)^n
  • Period Return: Return = (FV – I0) / I0
  • AER: AER = (1 + Return)^(360/days) – 1

Unit 2: Deposits, Loans, and Credit

Deposits

  • Gross Interest: Igross = C0 × i
  • Tax: Tax = Igross × tax rate
  • Net Interest: Inet = Igross – Tax
  • Net Final Amount: Cnet = C0 + Inet
  • AER Calculations:
    • General: AER = (1 + ik)^k – 1
    • Monthly: AER = (1 + im)^12 – 1
    • Quarterly: AER = (1 + iq)^4 – 1
    • Days: AER = (1 + iperiod)^(360/days) – 1
    • Reverse AER: ik = (1 + AER)^(1/k) – 1

Loans

  • Interest: Interest = Opening Balance × i
  • Closing Balance: Closing Balance = Opening Balance – Principal Repayment
  • Interest Only Loan: Principal Repayment = 0
  • Final Payment: Final Payment = Interest + Principal
  • Constant Amortisation: Principal Repayment = Loan / n
  • French Method: PMT = (P × i) / (1 – (1 + i)^(-n))

Credit Products

  • Credit Card: Interest = Outstanding Balance × im
  • Credit Line: Interest = Drawn Balance × i × days/360
  • Invoice Discounting: Discount = Nominal × i × days/360

Unit 3: Financial Statements and Ratios

Income Statement and Balance Sheet

  • Net Interest Income: NII = Interest Income – Interest Expense
  • Gross Income: NII + Net Fees + Gains/Losses + Other Operating Income – Other Operating Expenses
  • Net Income: PBT – Taxes
  • Accounting Identity: Assets = Liabilities + Equity

Performance Metrics

  • NIM: NII / Earning Assets
  • ROA: Net Income / Total Assets
  • ROE: Net Income / Total Equity
  • DuPont Analysis: ROE = Profit Margin × Turnover × Leverage

Unit 4: Risk Management

  • Interest Rate Risk: Loan Rate = Reference Rate + Spread
  • Currency Risk: Euro Value = Foreign Currency Amount / Exchange Rate
  • Liquidity: Reserve Ratio = (Cash + Central Bank Deposits) / Deposits
  • Household Credit Risk: Affordability = Mortgage Payment / Income
  • Company Credit Risk: Debt/EBITDA < 4

Unit 5: Insurance and Fintech

  • Insurance: Final Premium = Technical Premium + Commercial Margin
  • Fintech Profitability: Profit = Fee Income – Total Cost