Accounting Cheat Sheet: Key Formulas and Financial Ratios

Fundamental Accounting Equations

• Assets = Liabilities + Equity
• Net Income = Revenues - Expenses
• Gross Profit = Sales - Cost of Goods Sold (COGS)
• Operating Income = Gross Profit - Operating Expenses
• Income Before Tax = Operating Income ± Non-operating Items
• Net Income = Income Before Tax - Tax Expense
• Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends

Cash Flow and Adjusting Entries

• Free Cash Flow = Operating Cash Flow - Capital Expenditures
• Change in Cash = Cash Flow from Operating + Investing + Financing
• Accrued Revenue → Revenue ↑, Receivable ↑
• Accrued Expense → Expense ↑, Payable ↑
• Deferred Revenue → Unearned Revenue ↓, Revenue ↑
• Prepaid Expense → Prepaid Asset ↓, Expense ↑
• Depreciation → Depreciation Expense ↑, Accumulated Depreciation ↑

Depreciation and Inventory Valuation

• Straight-Line Depreciation = (Cost - Residual Value) / Useful Life
• Double-Declining Balance = Book Value × (2 / Useful Life)
• Units of Production = (Cost - Residual Value) / Total Units × Units Used
• Cost of Goods Sold (COGS) = Beginning Inventory + Purchases - Ending Inventory
• FIFO (IFRS) = Use most recent costs
• LIFO Reserve = FIFO Ending Inventory - LIFO Ending Inventory
• FIFO Cost of Goods Sold = LIFO Cost of Goods Sold - Change in Reserve (Decrease +)

Receivables and Revenue Recognition

• Net Accounts Receivable = Accounts Receivable - Allowance for Doubtful Accounts
• Bad Debt (Sales %) = Sales × % Estimated Uncollectible
• Bad Debt (Aging) = Sum of (Accounts Receivable × % Age Group)
• Ending Allowance for Doubtful Accounts = Beginning ADA + Bad Debt Expense - Write-offs
• % Complete = Costs Incurred / Total Estimated Costs
• Revenue Recognized = Contract Value × % Complete
• Gross Profit = Revenue Recognized - Costs Incurred

Financial Ratio Analysis

Profitability Ratios

• Return on Equity (ROE) = Net Income / Average Equity
• Return on Assets (ROA) = Net Income / Average Total Assets
• Gross Profit Margin = (Sales - COGS) / Sales
• EBITDA Margin = EBITDA / Sales (Operating Profitability)
• Net Profit Margin = Net Income / Sales
• Effective Tax Rate = Tax Expense / Pre-tax Income

Solvency and Liquidity Ratios

• Debt-to-Equity = Total Liabilities / Equity
• Long-Term Debt/Equity = Long-Term Debt / Equity
• Equity Multiplier = Total Assets / Equity
• Interest Coverage = EBIT / Interest Expense
• Current Ratio = Current Assets / Current Liabilities
• Quick Ratio = (Cash + Marketable Securities + Accounts Receivable) / Current Liabilities
• Cash Ratio = Cash / Current Liabilities

Efficiency Ratios

• Asset Turnover = Sales / Average Total Assets
• Inventory Turnover = COGS / Average Inventory
• Accounts Receivable Turnover = Sales / Average Accounts Receivable
• Accounts Payable Turnover = COGS / Average Accounts Payable
• Cash Conversion Cycle (CCC) = DIO + DSO - DPO
• Days Inventory Outstanding (DIO) = Average Inventory / (COGS / 365) OR 365 / Inventory Turnover
• Days Sales Outstanding (DSO) = Average Accounts Receivable / (Sales / 365) OR 365 / A/R Turnover
• Days Payable Outstanding (DPO) = Average Accounts Payable / (COGS / 365) OR 365 / A/P Turnover

Debt, Bonds, and Valuation Metrics

• Interest Payment = Face Value × Coupon Rate
• Effective Interest = Carrying Value × Market Rate
• Amortization (Discount or Premium) = Interest Expense - Interest Paid
• Discount = Market Rate > Coupon Rate
• Premium = Market Rate < Coupon Rate
• Recovery Value = Stressed Collateral / Total Debt
• Basic EPS = (Net Income - Preferred Dividends) / Weighted Average Shares Outstanding (Growth Metric)
• Diluted EPS = Earnings Attributable to Common / (Shares Outstanding + Convertible Securities)
• Dividends Per Share (DPS) = Total Dividends / Shares Outstanding (High = Income Focus)
• Dividend Payout = DPS / EPS (High = Income Focus)
• Dividend Yield = DPS / Share Price (High = Income Focus)
• P/E Ratio = Share Price / EPS (Low P/E = Value Stock)
• P/B Ratio = Share Price / Book Value per Share
• Enterprise Value (EV) = Market Cap + Net Debt
• EV/EBITDA and EV/EBIT
• DuPont ROE = Net Profit Margin × Asset Turnover × Equity Multiplier