Financial Formulas

Key indicators and formulas related to Financial Formulas

120 metrics

Cash Flow, Burn & Runway

Fundamental metrics tracking cash generation, monthly burn rate, and operational liquidity.

Metric		Description
Burn Multiple		Efficiency metric showing how much cash a business burns to generate each dollar of new ARR.
Gross Burn Rate		Total cash spent on operating expenses and cost of goods sold in a given month.
Net Burn Rate		Net monthly cash loss calculated by subtracting cash inflows from gross burn.
After-Tax Cash Flow (ATCF)		Operational cash flow available after accounting for income tax payments and non-cash adjustments.
Cash Coverage Ratio		Solvency ratio measuring ability to pay interest expenses using cash-based operating earnings.
Cash Flow From Assets (CFFA)		Total cash generated by firm assets, available for distribution to creditors and shareholders.
Cash Ratio		Conservative liquidity ratio comparing highly liquid cash assets to short-term obligations.
Flow to Equity (FTE)		Valuation method measuring cash flows strictly available to equity shareholders after debt service.
Free Cash Flow (FCF)		Cash generated by operations after deducting capital expenditures needed to maintain assets.
Free Cash Flow to Equity (FCFE)		Cash available for distribution to equity shareholders after funding CapEx, working capital, and debt.
Operating Cash Flow (OCF)		Total cash generated or consumed by core business operations before financing and investments.
Price to Cash Flow Ratio		Valuation ratio comparing stock price to operating cash flow generated per share.
Free Cash Flow to Firm (FCFF)		Unlevered free cash flow available to all capital providers (debt and equity holders).
Operating Cash Flow Ratio		Liquidity metric evaluating how easily current liabilities are covered by cash from operations.

Capital Efficiency & Leverage

Key parameters and leverage metrics used to evaluate debt coverage, return on capital, and operational efficiency.

Metric		Description
Capital Expenditure (CapEx)		Funds spent by a business to acquire, upgrade, or maintain physical assets like equipment or property.
Combined Leverage (DCL)		Overall sensitivity of earnings per share (EPS) to changes in sales revenue.
Degree of Financial Leverage (DFL)		Sensitivity of net earnings to changes in operating income due to fixed debt interest costs.
Degree of Operating Leverage (DOL)		Sensitivity of operating income (EBIT) to revenue changes caused by fixed operating costs.
Debt Service Coverage Ratio (DSCR)		Measures available operating income to pay annual principal and interest debt payments.
Human Capital ROI (HCROI)		Financial return generated per dollar invested in employee compensation and benefits.
Net Interest Margin (NIM)		Profitability metric for financial institutions measuring net yield on interest-earning assets.
Operating Expenditure (OpEx)		Ongoing operational costs incurred in day-to-day business management.
Risk-Adjusted Return on Capital (RAROC)		Profitability assessment framework factoring risk exposure into capital return calculations.
Additional Funds Needed (AFN)		External financing required to support projected top-line revenue growth.
Adjusted Present Value (APV)		Project valuation model separating core project NPV from financing side effects like tax shields.
Capital Asset Pricing Model (CAPM)		Model estimating required return on equity based on systematic market risk.
Capital Intensity		Amount of capital assets required to generate a single dollar of revenue.
Cost of Capital		Minimum rate of return a company must earn to satisfy capital providers.
Coverage Ratio		General solvency metric assessing ability to cover fixed interest obligations.
Current Ratio		Standard liquidity ratio evaluating short-term obligation coverage using assets convertible within a year.
Customer Concentration Ratio		Percentage of total revenue generated by a small group of top clients.
Debt-to-Equity Ratio		Financial leverage metric comparing total borrowed debt to shareholder equity capital.
Debt-to-Service Ratio		Proportion of operational cash flow required to fulfill total debt principal and interest obligations.
Duration		Measures sensitivity of fixed-income assets to changes in interest rates.
Earnings Before Interest and Taxes (EBIT)		Operational income generated before accounting for capital structure interest and taxes.
Earnings Before Taxes (EBT)		Pre-tax income available after deducting operating expenses and financing costs.
Equity Multiplier		Financial leverage metric measuring proportion of assets funded by shareholder equity.
Market Penetration Index		Percentage of total addressable target market customers captured by a brand.
Market-to-Book Ratio		Valuation ratio comparing equity market valuation to accounting balance sheet book value.
Marketing Efficiency Ratio (MER)		High-level performance metric measuring total top-line revenue generated per dollar spent on marketing.
Net Income After Taxes (NIAT)		Final bottom-line net profit remaining after deducting operating, interest, and tax expenses.
Net Operating Profit After Taxes (NOPAT)		Theoretical operational cash profit assuming zero financial leverage and debt interest.
Net Working Capital (NWC)		Operating liquidity buffer measuring available capital to fund day-to-day operations.
Penetration		Percentage adoption rate of a product or service within a defined customer target market.
Plowback Ratio		Percentage of net income retained in the business to fund future expansion.
Price-Earnings Ratio (P/E)		Standard market valuation metric comparing share price to annual per-share net earnings.
Quick Ratio		Strict liquidity ratio measuring capability to settle short-term obligations without selling inventory.
Return on Capital Employed (ROCE)		Efficiency ratio evaluating pre-tax operating earnings generated relative to long-term capital employed.
Return on Equity (ROE)		Core profitability metric measuring net income generated per dollar of shareholder equity capital.
Return on Invested Capital (ROIC)		Percentage yield earned on total capital invested by debt and equity holders.
SaaS Quick Ratio		SaaS growth health metric measuring recurring revenue gains relative to lost recurring revenue.
SPELL Framework		Diagnostic framework analyzing Solvency, Profitability, Efficiency, Liquidity, and Leverage.
Times Interest Earned Ratio (TIE)		Solvency ratio measuring ability to pay interest charges out of operating profits.
Total Debt Ratio		Proportion of total company assets financed through debt obligations.
Weighted Average Cost of Capital (WACC)		Blended average cost of capital across equity and after-tax debt financing sources.
Working Capital		Short-term operational cash reserve available to cover day-to-day commitments.
Security Market Line (SML)		Graphical representation of CAPM showing expected asset return relative to systematic market risk.
Compa-Ratio		Human resources metric comparing individual compensation against competitive market midpoints.
DAU/MAU Stickiness Ratio		Product engagement metric measuring user retention and habit formation.
Days Payables Outstanding (DPO)		Average number of days a company takes to pay back supplier invoices.
Dividend Payout Ratio (DPR)		Percentage of net profit distributed to shareholders as dividend payouts.
DEI Index		Composite score measuring workplace diversity, equity, and inclusion performance.
EBITDAR		Earnings metric adding back rent/lease expenses to evaluate companies with major leased facility structures.
Enterprise Value to Invested Capital (EV/IC)		Valuation multiple comparing total enterprise value to capital invested in core business operations.
Fixed-Charge Coverage Ratio (FCCR)		Solvency ratio assessing capability to meet fixed obligations including leases, insurance, and debt service.
General & Administrative Expense Ratio		Proportion of top-line revenue spent on general corporate overhead expenses.
Human Capital Value Added (HCVA)		Profitability metric measuring average financial value generated per full-time employee.
Internal Rate of Return on Equity (IRRE)		Discount rate equating initial equity investment with the present value of future equity cash flows.
Management Ratio		Percentage of total operational expenditure allocated to executive and managerial compensation.
Marginal Cost of Capital (MCC)		Incremental cost incurred by a company to raise an additional dollar of capital.
Net Operating Working Capital (NOWC)		Operational working capital excluding non-operating cash holdings and interest-bearing debt liabilities.
Overall Operations Effectiveness (OOE)		Comprehensive operational efficiency metric evaluating asset availability, performance speed, and output quality.
Price to Book Ratio (P/B)		Valuation ratio comparing stock market value to per-share accounting book value.
Weighted Average Cost of Debt (WACD)		Effective after-tax borrowing cost weighted across all corporate debt instruments.

Return on Capital & Valuation

Analytical frameworks for evaluating investment profitability, asset efficiency, capital costs, and corporate valuation.

Metric		Description
Cost of Quality (CoQ)		Total financial expense incurred to maintain quality standards and handle product or service defects.
Modified Internal Rate of Return (MIRR)		Investment yield metric assuming positive cash flows are reinvested at the cost of capital.
Total Cost of Ownership (TCO)		Comprehensive accounting of all direct and indirect expenses incurred throughout an asset's useful life.
Basic Earning Power (BEP)		Measures asset operating earnings capacity before taxes and leverage considerations.
Break-Even Point		Minimum sales unit volume required to cover fixed and variable costs without net profit or loss.
Cost of Goods Sold (COGS)		Direct expenditures incurred in producing or acquiring inventory sold during an accounting period.
Depreciation Expense		Systematic allocation of a tangible asset's historical cost over its useful economic life.
DuPont Identity		Deconstructs Return on Equity into profit margin, asset efficiency, and financial leverage.
Internal Rate of Return (IRR)		Discount rate that yields a Net Present Value of zero for a series of project cash flows.
Net Income		Final residual income remaining after deducting all operating costs, interest, and taxes.
Net Present Value (NPV)		Sum of discounted future cash inflows minus initial capital investment costs.
Return on Assets (ROA)		Percentage indicator of operational efficiency in converting asset base into net profit.
Return on Marketing Investment (ROMI)		Financial return generated relative to capital allocated toward marketing campaigns.
Dividend Discount Model (DDM)		Equity valuation method pricing stock based on the present value of expected future dividends.
Internal Rate of Return on Assets (IRRA)		Yield metric evaluating rate of return generated specifically by physical asset cash flows.
Operating Return on Assets (OROA)		Efficiency metric assessing operating earnings capacity per unit of total company assets.

Profitability & Margins

Core operational margin metrics and valuation multiples evaluating top-to-bottom income efficiency.

Metric		Description
Enterprise Multiple (EV/EBITDA)		Valuation ratio comparing overall business value to core operational cash generation capacity.
Profitability Index (PI)		Ratio of future present value cash inflows to initial project capital investment cost.
Contribution Margin		Percentage of sales revenue remaining after variable costs to cover fixed operational overhead.
Gross Margin Return on Investment (GMROI)		Inventory productivity ratio measuring gross profit generated for each dollar invested in stock.
Gross Profit		Initial revenue balance remaining after deducting direct production and material costs.
Margin Multiple		Valuation metric relating enterprise value directly to gross profit capacity.
Operating Profit Margin		Percentage of revenue retained after fulfilling variable and fixed operational expenses.
Profit Margin		Final bottom-line margin indicating percentage of total revenue converted into net earnings.

SaaS Recurring Revenue

Core metrics tracking subscription revenue streams, churn velocity, expansion dynamics, and product-market health.

Metric		Description
AARRR (Pirate Metrics)		Product growth framework mapping the 5 stages of customer lifecycle: Acquisition, Activation, Retention, Referral, and Revenue.
Average Revenue per Daily Active User (ARPDAU)		Average monetized value generated per active daily active user, commonly used in high-frequency applications.
Average Revenue per Paying User (ARPPU)		Average revenue generated strictly from active paying subscribers, excluding free tier users.
Average Revenue per User (ARPU)		Standard measure of average monthly revenue generated per active user account across all tiers.
Churn Rate		Percentage of subscription customers who cancel or non-renew their plan within a given timeframe.
Expansion MRR		Additional recurring revenue generated from existing customers through plan upgrades, add-ons, or seat expansions.
RARRA Framework		Retention-centric growth framework prioritizing Retention, Activation, Referral, Revenue, and Acquisition.
Revenue per Customer		Total historical or period revenue generated divided by total unique purchasing customers.
SaaS Magic Number		Efficiency benchmark measuring the growth engine output generated per dollar spent on sales and marketing.
Annual Recurring Revenue (ARR)		Normalized annualized value of predictable recurring revenue generated from active subscription contracts.
Average Revenue per Account (ARPA)		Average monthly recurring revenue contributed per account, accounting for multi-seat enterprise contracts.
Average Revenue per User Growth		Percentage change in average revenue per user over a consecutive monthly or annual period.
Commit MRR (CMRR)		Forward-looking recurring revenue forecast incorporating signed future contracts and known impending cancellations.
Contracted Annual Recurring Revenue (CARR)		Annualized committed subscription value including signed enterprise contracts scheduled for future implementation.
Gross Revenue Retention (GRR)		Percentage of recurring revenue retained from existing customers over a period, excluding expansion revenue.
Logo Churn Rate		Proportion of total distinct customer accounts (logos) lost during a given timeframe.
Monthly Recurring Revenue (MRR)		Core subscription metric measuring total predictable revenue generated per month from all active accounts.
Net Revenue Retention (NRR)		Total percentage of recurring revenue retained from existing customers, accounting for expansion, churn, and contraction.
Product-Market Fit Score (PMF Score)		Survey metric evaluating product-market fit based on the percentage of users who would be very disappointed if the product disappeared.
Revenue per Full-Time Equivalent (Revenue per FTE)		Organizational productivity metric measuring annual revenue generated per full-time employee.

CAC, LTV & Unit Economics

Fundamental metrics for evaluating customer acquisition cost recovery, unit profitability, and lifetime value economics.

Metric		Description
Customer Lifetime Value (LTV)		Total estimated gross margin dollar value generated by a single customer account across its lifespan.
Payback Months		Number of months required for a new customer account to generate enough gross profit to recoup its acquisition cost.

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