CS Executive CAFM cheat sheet

Prime cost = direct material + direct labour + direct expenses; factory cost = prime cost + factory overheads (adjusting WIP).

Cost of goods sold = opening finished goods + cost of production − closing finished goods; cost of sales = COGS + selling and distribution overheads.

Absorption rate = budgeted overhead ÷ budgeted base (labour hours, machine hours, or direct wages); under/over-absorption = absorbed − actual overhead.

Under marginal costing, closing stock and profit are lower than under absorption costing when production exceeds sales, because fixed overhead is not carried in stock.

Break-even units = fixed cost ÷ contribution per unit; BEP sales value = fixed cost ÷ P/V ratio; P/V ratio = contribution ÷ sales.

Margin of safety = actual sales − break-even sales; profit = margin of safety × P/V ratio.

Required sales for target profit = (fixed cost + desired profit) ÷ contribution per unit.

Relevant cost for a decision excludes sunk costs and committed fixed costs but includes opportunity cost and incremental cash flows.

Standard costing variances: material price = (standard price − actual price) × actual quantity; material usage = (standard quantity − actual quantity) × standard price.

Time value: PV = FV ÷ (1 + r)^n; FV of annuity = A × [((1 + r)^n − 1) ÷ r]; PV of perpetuity = A ÷ r.

Cost of debt after tax = interest × (1 − tax rate) ÷ net proceeds; use yield to maturity when the issue is at a premium or discount.

Cost of equity by dividend growth model: Ke = (D1 ÷ P0) + g; by CAPM: Ke = Rf + β(Rm − Rf).

WACC = weighted average of after-tax costs of each source using market value weights; book value weights are acceptable only when market values are unavailable.

Leverage: DOL = contribution ÷ EBIT; DFL = EBIT ÷ (EBIT − interest); combined leverage = DOL × DFL.

Financial leverage raises EPS only when return on capital employed exceeds the after-tax cost of debt (favourable leverage).

Net present value = present value of cash inflows − initial outlay; accept when NPV > 0.

Profitability index = PV of inflows ÷ initial outlay; accept when PI > 1; useful for ranking under capital rationing.

Holding period return = (income + ending price − beginning price) ÷ beginning price; annualise by compounding or by dividing by the holding fraction.

CAPM: expected return = Rf + β(E(Rm) − Rf); beta measures systematic risk only, unsystematic risk is diversified away.

Security market line plots expected return against beta; a security above the line is undervalued (positive alpha).

Sharpe ratio = (Rp − Rf) ÷ σp; Treynor ratio = (Rp − Rf) ÷ βp; Jensen's alpha = Rp − [Rf + βp(Rm − Rf)].

Portfolio variance for two assets = w1²σ1² + w2²σ2² + 2w1w2ρσ1σ2; minimum variance occurs at negative or low correlation.

Fundamental analysis uses E-P-S, P/E, P/B, dividend yield, and intrinsic value versus market price to judge over/undervaluation.

Technical analysis indicators include moving averages, RSI, and support/resistance; they assume prices discount information and trends persist.

Bond duration measures price sensitivity: percentage price change ≈ −duration × change in yield; modified duration = Macaulay duration ÷ (1 + y).

Capital budgeting methods: payback, discounted payback, ARR, NPV, IRR, and profitability index; NPV is preferred because it measures absolute value added.

IRR is the discount rate at which NPV = 0; accept if IRR > cost of capital; multiple IRRs can arise from non-conventional cash flows.

ARR = average annual accounting profit ÷ average investment; it ignores the time value of money.

Discounted payback uses discounted cash flows; a project is accepted if the discounted payback is within the target period.

Cash flows for appraisal use incremental after-tax cash flows, including depreciation tax shield and working capital changes, excluding interest and sunk costs.

Depreciation tax shield = depreciation × tax rate; add it back to accounting profit to derive operating cash flow.

In replacement decisions, compare incremental cash flows of the new machine against the salvage value and operating cost savings of the old.

Capital rationing: rank divisible projects by profitability index; for indivisible projects use trial combinations to maximise NPV within the budget.

Operating cycle = raw material holding period + WIP period + finished goods period + receivables collection period − payables deferral period.

Working capital = current assets − current liabilities; net working capital gap = current assets − (current liabilities + long-term funds available).

Current ratio = current assets ÷ current liabilities; quick ratio = (current assets − stock − prepaid) ÷ current liabilities.

Cash conversion cycle = inventory days + receivable days − payable days; shortening it releases cash.

Economic order quantity = √(2 × annual demand × order cost ÷ carrying cost per unit).

Re-order level = maximum usage × maximum lead time; safety stock covers demand variability during lead time.

Credit policy decisions compare incremental contribution from relaxed credit against the cost of extra receivables and bad debts.

Factoring and bill discounting convert receivables to cash; the cost is the discount or commission plus interest on advances.

Primary market issues: public issue, rights issue, bonus issue, private placement, and preferential allotment; IPO pricing uses book building or fixed price.

SEBI regulates the securities market; stock exchanges and depositories operate under SEBI regulations, and merchant bankers manage public issues.

Secondary market trading settles through clearing corporations; T+1 settlement applies to equity trades in India.

Depositories (NSDL, CDSL) hold securities electronically; a depository participant opens demat accounts for investors.

Mutual fund NAV = (total assets − liabilities) ÷ units outstanding; open-ended funds trade at NAV, closed-ended funds trade on the exchange.

Credit rating agencies (CRISIL, ICRA, CARE) assess default risk of debt instruments; a higher rating means lower credit risk and lower yield.

Financial services include leasing, hire purchase, factoring, venture capital, merchant banking, and mutual funds; each earns fees or interest.

Derivatives: futures and options are traded on recognised exchanges; options give the buyer a right, not an obligation, at a premium.