Basic accounting and finance formulas explained in easy language. Limit: 100 char.

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Accounting and finance formulas are essential tools used to calculate and analyze financial data. They help us understand and make decisions based on the numbers. In this article, we will provide a basic overview of these formulas in straightforward language.

1. Gross Profit Margin:
This formula helps determine how much profit a company makes from its sales. To calculate it, subtract the cost of goods sold from the revenue, then divide the result by the revenue and multiply by 100 to get a percentage.

2. Net Profit Margin:
This formula measures the profitability of a company after considering all expenses. To find it, subtract all expenses (including taxes) from the revenue, then divide the result by the revenue and multiply by 100.

3. Return on Assets (ROA):
ROA shows how efficiently a company uses its assets to generate profit. To calculate it, divide the net income by the total assets and multiply by 100.

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4. Return on Equity (ROE):
ROE measures the return on investment for a company’s shareholders. To determine it, divide the net income by the shareholders’ equity and multiply by 100.

5. Current Ratio:
This formula helps assess a company’s ability to pay its short-term debts. Divide the current assets by the current liabilities to get the current ratio.

6. Debt-to-Equity Ratio:
This ratio shows the proportion of a company’s financing that comes from debt compared to equity. Divide the total liabilities by the shareholders’ equity to calculate it.

7. Earnings Per Share (EPS):
EPS determines the profitability of a company on a per-share basis. Divide the net income by the number of outstanding shares to find it.

8. Price-Earnings Ratio (P/E Ratio):
This ratio helps assess the valuation of a company’s stock. Divide the market price per share by the earnings per share to calculate it.

9. Compound Interest:
Compound interest is the interest earned or paid on both the original amount and any accumulated interest. To calculate it, multiply the principal amount by one plus the interest rate raised to the power of the number of compounding periods.

These formulas serve as starting points for understanding various financial aspects. They allow individuals and businesses to make informed decisions based on their financial data.

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