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Performance Management Calculations

Calculations

Calculations and Ratios presents the essential mathematical tools the finance professional needs for finding solutions to daily numerical problems. This section includes how to calculate return on investment, return on shareholders' equity, working capital productivity, EVA, risk-adjusted rate of return, CAPM, and many more.

  • Cost of Goods Sold
    For a retailer, cost of goods sold (COGS) is the cost of buying and acquiring the goods that it sells to its customers. For a service company, COGS is the cost of the employee services it supplies. For a manufacturer, COGS is the cost of buying the raw materials and manufacturing its finished products.
  • Efficiency and Operating Ratios
    The portion of operating revenues or fee income spent on overhead expenses.
  • Marginal Rate of Substitution
    Sometimes referred to as MRS, the marginal rate of substitution measures the rate at which an individual must give up one asset to obtain a single additional unit of a second asset, while keeping overall utility constant. MRS can measure physical goods, but also assets such as labor or time. The result is generally plotted on an “indifference curve,” which shows the utility value for each combination of assets. MRS is also often used to show the...
  • Price Elasticity
    Price elasticity (sometimes known as price elasticity of demand, or PED) measures how demand for a product or service changes when the price charged is changed.
  • Return on Sales
    A company’s operating profit or loss as a percentage of total sales for a given period, typically a year.

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