There are many good reasons to enter management consulting, including the opportunity to work in a variety of different functions across many various industries. The formulas below are basic business formulas for the most common business problems.

Management Consulting Formulas

Return on Investment (ROI)

ROI = (Gain from Investment - Cost of Investment) / (Cost of Investment)

Breakeven Formula

Units to Breakeven

Total Fixed Costs = (Price Volume) - (Variable Cost Volume)

Then solve for volume.

Price to Breakeven

Total Fixed Costs = (Price Volume) - (Variable Cost Volume)

Then solve for price.

Time to Breakeven

Total Fixed Costs = (Revenues per [Day / Month / Year]) - (Costs per [Day/Month/Year])

Then solve for day/month/year.

Profitability Formula

Profitability = Revenues - Costs

Revenues = (Price * Volume)

Costs = (Fixed Costs) + (Variable Costs * Volume)

Profit Margin or Net Margin

Profit Margin or Net Margin = (Profits) / (Revenues)

Gross Margin

Gross Margin = (Revenues - Cost of Goods Sold) / (Revenues)

Net Present Value (NPV)

NPV = Initial Investment + (Cash Flow Year 1) / ( 1 + discount rate) + (Cash Flow Year 2)/(1 + discount rate)^2 + ... + (Ultimate Cash Flow Year X) / (1 + discount rate) ^ x

Incremental Revenue Gain/Loss

Incremental Revenue Gain/Loss = (Revenues from new product/company/etc.) - (Revenues from old product/company/etc.)

Breakeven Market Share

Breakeven Market Share = (Breakeven Volume) / (Total Market Size)

Return on Assets (ROA)

Return on Assets (ROA) = (Net Income) / (Total Assets)

Return on Equity (ROE)

Return on Equity (ROE) = (Net Income) / (Shareholders' Equity)

EBITDA

EBITDA = Earnings Before Income, Tax, Depreciation, and Amortization

Quick Ratio

Quick Ratio = (Current Assets - Inventory)/(Current Liabilities)

Current Ratio

Current Ratio = Current Assets/Current Liabilities

Debt Ratio

Debt Ratio = Total Debt/Total Assets

Debt-to-Equity Ratio

Debt-to-Equity Ratio = Total Debt/Total Equity

Free Cash Flow (FCF)

FCF = EBIT (1 - Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure

Future Value

Future Value = (Present Value)*(1 + i)^t

Present Value

Present Value =(Future Value)/(1 + i)^t

Perpetuity Formula

Perpetuity Formula = =(Cash Flow)/(discount rate - growth rate)

Price Elasticity of Demand

Price Elasticity of Demand = (% Change in Quantity)/(% Change in Price)

Cross Elasticity of Demand

Cross Elasticity of Demand =(% of change in Quantity for Good X)/(% of change in Price for Good Y)

Payback Period

Payback Period = Cost of Project/Annual Cash Inflows

Contribution Margin

Contribution Margin = Price/Unit - Variable Cost/Unit