FormulasFinalfinal_paper_6_ibsChapter 1
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Chapter 1

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5 formulas

Net Present Value (NPV)

Topic: Case Study IntegrationChapter: Chapter 1
NPV=∑t=0nCFt(1+r)tNPV = \sum_{t=0}^{n} \frac{CF_t}{(1+r)^t}
Measures the profitability of a project or investment by discounting all future cash flows (CF_t) to their present value using a discount rate (r) and subtracting the initial investment (CF_0). It is used for capital budgeting decisions, where 'n' is the project's life and 't' is the time period.

Return on Investment (ROI)

Topic: Case Study IntegrationChapter: Chapter 1
ROI=Net ProfitInvestment Cost×100%ROI = \frac{\text{Net Profit}}{\text{Investment Cost}} \times 100\%
Evaluates the efficiency or profitability of an investment. It measures the amount of return on an investment relative to the investment's cost. Useful for performance appraisal and comparing investment alternatives across different business segments or projects.

Breakeven Point (in Units)

Topic: Case Study IntegrationChapter: Chapter 1
Breakeven Point (Units)=Fixed CostsPer Unit Contribution Margin\text{Breakeven Point (Units)} = \frac{\text{Fixed Costs}}{\text{Per Unit Contribution Margin}}
Determines the number of units that must be sold to cover all fixed and variable costs, resulting in zero profit. The Per Unit Contribution Margin is Sales Price Per Unit minus Variable Cost Per Unit. Essential for cost-volume-profit analysis and pricing strategies.

Debt-to-Equity Ratio

Topic: Case Study IntegrationChapter: Chapter 1
Debt-to-Equity Ratio=Total DebtShareholders’ Equity\text{Debt-to-Equity Ratio} = \frac{\text{Total Debt}}{\text{Shareholders' Equity}}
A financial leverage ratio indicating the proportion of equity and debt used to finance a company's assets. It reflects the company's ability to meet its obligations and its financial risk profile, often analyzed in the context of capital structure decisions.

Economic Value Added (EVA)

Topic: Case Study IntegrationChapter: Chapter 1
EVA=NOPAT−(Capital Invested×WACC)EVA = \text{NOPAT} - (\text{Capital Invested} \times \text{WACC})
A measure of a company's financial performance based on residual wealth, calculated by subtracting the cost of capital from its Net Operating Profit After Tax (NOPAT). WACC stands for Weighted Average Cost of Capital. It indicates the true economic profit generated by the business.
Chapter 1 Formulas — CA Final | Kartavvya