Part II: Working with Formulas and Functions
however, uses average total equity rather than average total assets. The formula to calcu-
late ROE from Figure 15.5 is as follows:
=G15/AVERAGE(C25:D25)
Calculating break even
A business may want to determine how much revenue it will need to achieve a net profit of
exactly $0. This is called break even. The business will estimate its fixed expenses and esti-
mate the percentage of each of its variable expenses. Using those numbers, it can back into
a revenue amount that will result in the break even.
Figure 15.6 shows a break-even calculation. Column C shows either an F for a fixed expense
or a percentage for an expense that varies as revenue changes. For example, research and
development will be spent according to a budget and doesn’t change if revenue increases or
decreases. On the other hand, if the business pays a commission, the selling expenses will
rise and fall with revenues.
FIGURE 15.6
A break-even calculation
The following formulas are used in Figure 15.6:
Operating Margin
=SUM(D15:D18)
Margin Net of Variable Expenses
=SUM(D10:D13)
