Key Financial Ratios and Formulas for Businesses

Posted on Jan 8, 2025 in Economy

Key Financial Ratios and Formulas

Profit and Loss

• EBIT (Earnings Before Interest and Taxes) = Operating Revenue (Sales) – Operating Expenses
• BAT (Earnings Before Taxes) = EBIT – Interest Expense
• Net Income (BN) = BAT – Taxes
• Reserves = Net Income – Dividends
• Commercial Margin = EBIT / Total Sales
• Market Share = (Company Sales / Industry Sales) x 100

Profitability Ratios

• Profitability = (Profit Obtained / Invested Capital) x 100
• Return on Assets (ROA) = (EBIT / Total Assets) x 100
• Return on Equity (ROE) = (Net Income / Equity) x 100
• Return on Assets (RA) = (Profit Distributed / Capital Invested)

Cost and Revenue Analysis

• Profit = Revenues – Costs
• Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC)
• Average Total Cost (ATC) = TC / Quantity (Q)
• Average Variable Cost (AVC) = Variable Cost / Q
• Average Fixed Cost (AFC) = FC / Q
• Revenue = Price (P) x Quantity (Q)
• Total Cost (TC) = FC + (AVC x Q)
• Break-Even Point (Qo): P x Qo = FC + (AVC x Qo)
• Break-Even Point (Qo): P x Qo – (AVC x Qo) = FC
• Break-Even Point (Qo) = FC / (P – AVC)

Productivity Metrics

• Productivity = Production Output / Factors Used
• Productivity Rate of Change = (Productivity Result 1 – Productivity Result 2) / Productivity Result 1 x 100 (%)
• Global Productivity (GP) = (Value of Production / Value of Factors Used) = (Price x Quantity Produced) / Total Costs