Essential Financial Formulas for Business Analysis
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Financial Balance Sheet Formulas
- Working Capital (WC) = Accounts Receivable + Stock - Accounts Payable
- Net Short-Term Debt = Banking ST Debt - Cash
- Net Assets = WC + Net Fixed Assets
- Net Liabilities = Net ST Debt + Long-Term Debt + Equity
- Financial Margin (%) = Equity + Long-Term Debt - Net Fixed Assets
Working Capital (WC) Metrics
- AMP Collecting = (Average Receivables / Revenue) × 365
- 1 Day Revenue = Revenue / 365
- Purchases = Stock1 - Stock0 + Cost of Sales (COS)
- AMP Payment = (Average Payables / Purchases) × 365
- 1 Day Purchases = Purchases / 365
- AMP Stock = (Average Stock / COS) × 365
- 1 Day COS = COS / 365
- PMMF = AMP Collecting + AMP Stock - AMP Payment
Cash Flow Analysis
- CFO (Cash Flow from Operations) = Net Profit + Amortization - Increase in WC (WC1 - WC0)
- CFI (Cash Flow from Investing) = -(Increase in NFA (NFA1 - NFA0) + Amortization)
- CFF (Cash Flow from Financing) = Increase in Total Debt (TD1 - TD0) - Dividend Payments + Other Changes in Capital
- Cash Increase = Cash1 - Cash0
- Error = (CFO + CFI + CFF) - Cash Increase
- Free Cash Flow (FCF) = EBIT × (1 - Tax/EBT) + Amortization - Increase in WC - Increase in Gross Fixed Assets (or CFI)
- Debt Service = Financial Expenses × (1 - Tax Rate) + Increase in Debt (Debt0 - Debt1)
- Shareholder/Equity Service = -Capital Increase or Other Changes in Equity + Dividends + Cash Increase
- Error Margin = FCF - Debt Service - Equity Service
Break-Even and Leverage
- Break-Even over EBITDA = Fixed Expenses (General + Admin) / Gross Margin (1 - COS/Revenue)
- Break-Even over Net Profit = (Fixed Expenses + Amortization + Financial Expenses) / Gross Margin (1 - COS/Revenue)
- Operating Leverage = 1 + (Fixed Expenses + Amortization / EBIT)