The Manager's Pocket Calculator: A Quick Guide to Essential Business Formulas and Ratios


As a manager, you're called upon all the time to justify budgets, estimate returns, prepare forecasts, and many more tasks that boil down to hard numbers. And although you might be good with the concepts behind these critical management roles, what about the math itself? If you're not working with the numbers, you're only doing half your job-and you may be seriously hampering your career.

But you can transform yourself from a competent manager into an invaluable and ...

See more details below
$15.05 price
(Save 20%)$18.95 List Price

Pick Up In Store

Reserve and pick up in 60 minutes at your local store

Other sellers (Paperback)
  • All (23) from $1.99   
  • New (11) from $1.99   
  • Used (12) from $1.99   
The Manager's Pocket Calculator: A Quick Guide to Essential Business Formulas and Ratios

Available on NOOK devices and apps  
  • NOOK Devices
  • NOOK HD/HD+ Tablet
  • NOOK
  • NOOK Color
  • NOOK Tablet
  • Tablet/Phone
  • NOOK for Windows 8 Tablet
  • NOOK for iOS
  • NOOK for Android
  • NOOK Kids for iPad
  • PC/Mac
  • NOOK for Windows 8
  • NOOK for PC
  • NOOK for Mac
  • NOOK Study
  • NOOK for Web

Want a NOOK? Explore Now

NOOK Book (eBook)
$4.49 price
(Save 10%)$4.99 List Price


As a manager, you're called upon all the time to justify budgets, estimate returns, prepare forecasts, and many more tasks that boil down to hard numbers. And although you might be good with the concepts behind these critical management roles, what about the math itself? If you're not working with the numbers, you're only doing half your job-and you may be seriously hampering your career.

But you can transform yourself from a competent manager into an invaluable and irreplaceable business asset almost overnight with The Manager's Pocket Calculator. Prepared specifically for managers in non-finance departments and roles, this potentially career-saving tool helps you perform what might be the most important facet of your job: the specific application of formulas and ratios to the management decisions you make every day. The Manager's Pocket Calculator contains more than 100 of these formulas, complete with step-by-step instructions and clear examples, for use in:

Preparing and justifying departmental budgets

Explaining variances

Determining financial requirements and analyzing performance

Preparing financial reports and presentations demonstrating financial outcomes and estimates based on analysis of current processes, proposed expansion, cost-cutting projects, and other potential parameters

Communicating with accounting, auditing and other financial experts both internally and externally on financial matters

And much more

These days, your success as a manager boils down to the reality of one number: the bottom line. If you want a better understanding of (and real skill with) the numbers that influence it, you'll find The Manager's Pocket Calculator a practical and indispensable tool for every management decision you make.

Read More Show Less

Editorial Reviews

From the Publisher

"If you find preparing and justifying budgets, or even sitting down with accountants and financial advisors intimidating, pick up The Manager’s Pocket Calculator." --Niche magazine

Manager's Pocket Calculator…won't turn non-financial managers into accountants, but it will help them be better businesspeople.”--Accounting Today

Read More Show Less

Product Details

  • ISBN-13: 9780814416358
  • Publisher: AMACOM
  • Publication date: 10/6/2010
  • Pages: 288
  • Sales rank: 779,217
  • Product dimensions: 5.90 (w) x 9.00 (h) x 0.80 (d)

Meet the Author

MICHAEL C. THOMSETT is the author of several books including The Little Black Book of Project Management, The Real Estate Investor’s Pocket Calculator, The Stock Investor’s Pocket Calculator, and Getting Started in Options. He is a former accounting and financial services professional and consultant.

Read More Show Less

Read an Excerpt


The Basic Problem with


It’s all in the numbers. Everyone has heard this statement and it is

true. Your performance is invariably judged by how much profit you

create or by how much cost you incur in your segment, team, or

department. The so-called bottom line—profit or loss—is the universal

means for monitoring performance and for determining whether an initiative

was worthwhile.

With the dominance of the bottom line in every aspect of how your

performance is graded, you have a distinct advantage if you are skilled

at conveying information in terms of profitability. Conversely, you are at

a distinct disadvantage if you cannot communicate the profit or loss

aspects of your work to management. On a most basic level, just asking

management for something is less effective than demonstrating how an

approval is going to create additional profits or cut costs (related directly

to revenues) and expenses (overhead, not related directly to revenues).

This is the rudimentary distinction between managers with communication

skills and those who struggle every day trying to find the best way

to communicate what they know and what they have achieved.

If you do not have background and education in finance, you probably

struggle with these issues on a daily basis. Even those with training

in accounting may find it difficult to summarize their requests in plain,

simple, and clear terms for management. No one is immune from the

difficulty in matching numerical information with a request or recommendation.

For some, even if the numerical aspects of the job are comfortable,

conveying their significance to management can be very

difficult. For others, even those with exceptional communication skills,

reducing the numbers (‘‘crunching’’) to the basics is the real challenge.

Your purpose in making effective use of numerical information is to

convey the essential data that management needs to make an informed

decision—and to make your case convincingly. Faced with an unending

array of choices, management’s desire is to make choices that are not

only the most profitable but that also involve the least risk. It is not

enough to demonstrate that a decision is likely to be profitable if it also

incurs unacceptable risks: potential liability, supply chain losses, reduced

customer satisfaction, or damage to brand and reputation. When an

esteemed company like Mattel contracted for its manufacturing in China

but failed to properly supervise quality control, toys were sold in the

United States containing harmful lead. The product cost aspects of this

mistake were easily rectified. However, the reputation to the company,

while less tangible, is likely to affect profits at an unknown level and for

an unknown period of time. So the analysis of risk involves both tangible

and intangible considerations, making it difficult to know how much risk

is really involved in creating x profits as the result of y decisions.

What this means for you is that any communication is going to be

based on an evaluation of profit and loss, many forms of risk, and the

time required for return on investment, just to name a few considerations.

How do you communicate the relevant facts to management?

How do you reduce the research to well-supported recommendations or

to caution statements? These are only a few of the issues you face in

managing information and in massaging it to create an effective, simple,

and honest method of communication.

Read More Show Less

Table of Contents

Introduction: The Basic Problem with Numbers

Chapter 1 Compound Interest: The Power of Money 1

Time Value of Money: The Concept 2

Accumulated Value of a Series of Deposits 19

Looking Ahead 22

Chapter 2 Present Value and Sinking Funds 23

Present Value of a Single Deposit 24

Sinking Fund Payments and Present Value per Period 27

Loan Amortization 31

Reading Loan Amortization Tables 38

Annual Percentage Rate 44

Looking Ahead 45

Chapter 3 Rates of Return 46

Return on Revenue and Equity 46

Cash Return and Cash Flow 53

Returns on Purchases and Sales 58

Investment-Based Returns 61

Annualized Return 65

Looking Ahead 67

Chapter 4 Calculating Breakeven and After-Tax Profit 68

Hidden Costs 68

The Inflation Effect 73

Taxes in the Profitability Equation 76

Breakeven Calculations: Inflation and Taxes 79

Calculating Cash Flow 83

Looking Ahead 86

Chapter 5 Financial Reporting Formulas: The Balance Sheet 87

Balance Sheet Basics 87

Working Capital Ratios 91

Ratios Showing Management of Working Capital 94

Capitalization Ratios 99

Combined Ratios 105

Looking Ahead 108

Chapter 6 Financial Reporting Formulas: The Income Statement 109

Income Statement Basics 111

Dollar and Percentage Reporting 115

Cost of Goods Sold Relationships 121

Revenue and Profitability Trends 125

Core Earnings 127

Looking Ahead 128

Chapter 7 Depreciation Calculations 130

Basic Depreciation Rules 131

Straight-Line and Declining Balance Depreciation 132

Class Lives and Recovery Periods 136

Depreciation Calculations for Real Estate 140

Home Office Depreciation 145

Amortization 147

Looking Ahead 149

Chapter 8 Bringing Reports to Life: Powerful Arguments with the Numbers 150

Picking Your Report Format 151

Narrative Sections 153

Financial Sections 158

Combining Narrative and Financial Content 161

Graphics in Reports 164

Looking Ahead 166

Chapter 9 Budgeting Calculations: Assumptions and Prorations 168

Documenting Your Assumptions 169

Addressing the Expense Issues 172

Prorating Expense Estimates 175

Calculating Variances 177

Revising Budgets 180

The Nuture of Revenue Forecasts 182

Looking Ahead 185

Chapter 10 Statistics for Effective Reporting 186

Management Application of Statistics 186

Statistical Averages 190

Dispersion, Variance, and Deviation 196

Accuracy in Statistics 202

Looking Ahead 206

Chapter 11 Incredible Math Shortcuts 207

Addition Shortcuts 207

Subtraction Shortcuts 211

Logical Rules 214

Multiplication Shortcuts 216

Division Shortcuts 225

Looking Ahead 226

Chapter 12 Incredible Conversion, Measurement, and Time Shortcuts 227

Conversion 227

Measurements 236

Time Shortcuts 241

Appendix: Summary of Formulas 245

Index 269

Read More Show Less

First Chapter

The Manager's Pocket Calculator

A Quick Guide to Essential Business Formulas and Ratios
By Michael C. Thomsett


Copyright © 2010 Michael C. Thomsett
All right reserved.

ISBN: 978-0-8144-1635-8

Chapter One

Compound Interest: The Power of Money

Money and time are directly and inescapably related. The longer money is left on deposit, the more it earns; similarly, the longer it takes to repay a loan, the more it costs. Although this concept—that the benefit or cost of money increases over time—is easily explained, it is not always understood. This chapter explains how the time value of money works and provides formulas for calculating interest in various ways.

In the calculation of interest cost, time is the most critical element, even more so than the rate. These two factors—time and rate—define the true cost of money. When an organization borrows money through working capital loans, equipment financing, or any other vehicle, there is a tendency to focus on the interest rate only. Though the rate is important, there is more to consider, including the monthly payment required and the length of time it is going to take to retire the loan. At 7.5%, for example, a 10-year repayment is going to cost twice as much in interest as a loan for the same amount with a four-year repayment.

* Example: You borrow $20,000 from your local lender. You have a choice: repayment in four years at $483.58 per month or repayment in eight years at $277.68 per month. Your first reaction is that the lower payment is desirable. However, when you add up your total of payments for each of these loans, you discover the truth: The total for the four-year term is $23,211.84 (48 months $483.58), and the total for the eight-year term is $26,657.28 (96 months $277.68). The difference in total interest is $3,445.44. The interest cost for the longer-term loan is twice as much as for the shorter-term loan.

Selecting a repayment period is a matter of balance between the affordability of the monthly payment and the overall cost of interest. This decision is the essence of the time value of money. So in calculating the cost of repayment for this $20,000 loan, you need to evaluate the interest rate and monthly payment; however, you also need to compare the total cost of interest based on different loan repayment terms.

In addition to the monthly payment and overall interest cost, the method of interest calculation affects the total of payments as well. You need to employ different interest compounding methods, not to mention calculating the cost of borrowing money, for various reporting and budgeting purposes.

Time Value of Money: The Concept

A combination of elements defines the true cost or benefit of money. The cost is incurred when you borrow and the benefit results from savings. There are four elements:

1. Amount borrowed

2. Repayment term

3. Interest rate

4. Compounding method

1. Amount Borrowed

The most easily understood element of all is the amount borrowed. Most people understand that the more money they borrow, the higher the repayment is going to be. This simplicity is obscured, however, by the varying payment levels for different lengths of repayment.

* Example: At 7.5%, a $20,000 loan requires monthly payments of $483.58 over four years. However, you can borrow $30,000 and pay only $416.52 per month or less in monthly payments. The drawback, however, is that repayment of the $30,000 will take eight years, and the total interest is $9,985.92. (The $9,985.92 is almost equal to the additional amount borrowed: $30,000 $20,000). The smaller loan with faster repayment costs $3,211.84, or interest equal to about one-third of the longer-term loan with smaller payments.

Which loan is better suited to your needs? For most business owners and managers, the commitment to debt service that is twice the length of the original $20,000 loan has to be a primary consideration. The amount borrowed is $10,000 more, but you are committed to repayments for twice as many years.

Developing a rationale to justify the lengthier borrowing schedule is possible.

* Example: If you originally wanted only $20,000, why not borrow $30,000 and invest the difference? The payments are about the same amount, but the $10,000 is enough to repay all of the interest on the higher loan.

This argument overlooks two important facts, however. First, although the higher loan amount creates enough cash to pay the interest, you also have to repay the additional $10,000 borrowed, and that translates to twice the length of repayment. Second, will you really save the difference? As many business managers have realized, setting up a reserve and leaving it in place is difficult. Over time, management is going to be tempted to use the fund for other necessities, and ultimately the end result is the same: The longer-term loan is going to be more expensive and require a lengthier repayment commitment.

2. Repayment Term

Picking a repayment term should never be based on the monthly payment alone; it should include an analysis of cash flow requirements and limitations (see Chapter 4), as well as the affordability of borrowing. You may want to borrow money for any number of reasons, but all should be analyzed with a series of key questions:

Can I afford the repayments?

How does a loan affect my cash flow?

Have I identified how the loan will increase profits? (Profitability can be affected by expanded markets, greater efficiencies, or improved products or services.)

The repayment term might seem like a no-brainer: You want to get a loan repaid as quickly as you can afford, at the lowest interest cost, and with the least impact on cash flow. However, the question also has to depend on affordability and cash flow, not merely on the concept that "more is good" when it comes to adding debt. This common belief can not only be destructive to your ability to fund repayments while maintaining cash flow, but it can also ignore how much negative impact debt might have on future expansion and profits.

3. Interest Rate

The interest rate you are required to pay to borrow money (or that you are paid to save or invest) makes a tremendous difference over time. Some loans can be negotiated for a lower interest rate in exchange for more rapid repayment, saving money over the full term. For example, the difference between 7.0% and 7.5% is about $5.19 per month over 10 years. For a $20,000 loan, that comes out to a difference of $622.80. For a $200,000 loan, the difference is about $6,228 for that 0.5% difference in the rate. So negotiating a rate downward by a half percentage point makes a difference, and the larger the loan is, the more the dollar value of the savings.

The interest rate can also be either fixed or adjustable. Although these terms are most often associated with residential mortgage loans, they can also be applied to business loans of many types and have varying terms. An interest-only loan can be renegotiable after a few years. However, the rate you will be expected to pay is likely to change based on the interest market at the time. In this respect, the interest rate—unless fixed for the full term of the loan—is the great variable in the evaluation.

4. Compounding Method

The previous cases have all been based on monthly compounding of interest. In other words, the nominal rate (the annual rate stated by the lender) is divided by 12 (months), and the resulting monthly interest is calculated against the current loan balance. This method results in an annual rate higher than the nominal rate. As you might expect, the higher your interest rate, the more expensive monthly compounding is going to be.

Banks may charge monthly compounding rates for the money they loan, while paying you only quarterly compounded interest for funds you leave on deposit. Though this is not equitable, the banks also know that you need the loan at least as much as they want to grant it. Most managers pay little attention to the compounding method because it does not make much difference in the actual rate. For example, 7.5% compounded monthly comes out to an annual rate of 7.76% (compounding is explained later in this chapter). In comparison, quarterly compounding produces an annual rate of 7.71%, or only 0.005% less. The difference over the loan's repayment term adds up.

Simple Interest. To calculate interest, whether on a loan or a savings account, the basic formula—simple interest—is easy. Just multiply the stated interest rate by the principal amount (the amount borrowed).

Simple interest

P x R = I

where: P = principal R = interest rate I = interest

On a spreadsheet, enter the following:

A1 P B1 R C1 = SUM(A1*B1)

* Example: The amount you are thinking about borrowing for a short-term working capital loan is $5,000. The rate you are quoted is 8.0%. Simple interest is calculated as:

$5,000 X 8.0% = $400

The spreadsheet values are:

A1 5,000 B1 0 .08


When multiplying by a percentage, convert the stated rate to decimal form. Shift the decimal two places to the left or divide by 100; either method produces the same result.

Percentage Conversion to Decimal: Decimal Shift

r.0% = 00r.0 = 0.0r

Percentage Conversion to Decimal: Divide by 100

r / 100 = D

where: r = percentage rate D = decimal equivalent

* Example: At 8.0%:

8.0% / 100 = 0.08

The recalculated decimal equivalent is used as the multiplier in the simple interest calculation. To make this calculation on a spreadsheet program, enter the following values:

A1 R B1 = SUM(A1/100)

Based on the preceding example, A1 is the value 8.00, and this results in a shift to C1 of 0.08.

Simple interest may be used for calculations in some loans, especially those due in one year or less. However, it is rarely used for most business loans. This calculation works as a sensible starting point for more complex interest calculations and for making comparisons between the stated, or nominal, rate and the annual compound rate.

Daily Compound Interest. Most interest is compounded more than once per year. The most common rates are monthly and quarterly. The periodic rate of interest (the rate paid per partial-year period based on compounding method) is the rate per cycle of compounding. For example, monthly compounding is equal to one-twelfth of the stated annual rate, which is each month's periodic rate. Quarterly compounding has a periodic rate of one-quarter (of the year). So there are 12 periods for monthly compounding and four for quarterly compounding. To find the periodic rate, divide the stated rate by the number of periods in the year.

Periodic Rate

R / p = i

where: R = nominal interest rate p = number of periods i = periodic interest rate

On a spreadsheet program, enter the following values:

A1 R B 1p C1 = SUM(A1/B1)

* Example: Your stated interest rate is 7.5%. Compounding takes place monthly, meaning there are 12 periods in the year. The periodic rate in this case is:

7.5% / 12 = 0.625%, or 0.00625 decimal

Spreadsheet values are:

A1 7.5 B1 12

Recall the conversion formula. To convert 7.5% to decimal form, shift the decimal two places to the left or divide by 100:

7.5 / 100 = 0.075 decimal

Next, the decimal equivalent is divided by the number of periods. For monthly compounding, divide by 12:

0.075 / 12 = 0.00625%

You need to know the periodic rate to calculate interest for each period and to figure out the compound annual rate. The method requiring the greatest amount of calculation, daily compounding, has a periodic rate of either 360 or 365. Using 365 is called the full-year method, and using 360 is known as the banker's year method.

To calculate daily compounding (using the 365-day method), first divide the full year's interest rate by 365. This produces the daily periodic rate.

Daily Periodic Rate (365 Days)

R / 365 = i

where: R = stated annual interest rate i = periodic interest rate (365 days)

On a spreadsheet program, enter:

A1 R (in decimal form) B1 = SUM(A1/B1)

* Example: Your stated interest rate is 7.5% (or a decimal equivalent of 0.075). The method used for calculating interest is daily, based on the 365-days-per-year rate. The daily period rate is:

0.075 / 365 = 0.0002055

Once you compute the daily rate, each day's interest is computed with a series of steps:

1. Add 1 to the daily rate. This is the first day's multiplier for a debt: 0.0002055 + 1 = 1.0002055

2. Multiply the sum in the previous step by the amount of the debt. For example, if the amount borrowed is $8,000, the first day's debt (principal plus interest) interest is: 1.0002055 X $8,000.00 = $8,001.64

3. To calculate subsequent days of the accumulated debt, multiply the preceding answer by the initial daily rate in step 1: 1.0002055 X $8,001.64 = 8,003.28

To calculate the effective interest for several days, you can use a shortcut method. Multiply the daily rate by the number of additional days and then by the initial sum.

* Example: If you want to calculate the interest as of the fifth day, multiply the daily rate by itself four times (for days two through five) and then by the principal amount:

1.0002055 X 0.0002055 X 1.0002055 X 1.0002055 X 1.0002055 X $8,000.00 = $8,008.22

A shorthand version of this formula is:

1.00020555 X $8,000.00 = $8,008.22

This can be verified by checking the steps for each of the five days:

Day Rate Total

$8,000.00 1 1.0002055 8,001.64 2 1.0002055 8,003.29 3 1.0002055 8,004.93 4 1.0002055 8,006.58 5 1.0002055 8,008.22

The formula for calculating daily compounding is:

Daily Compounding

[1 + (R / i)n] X P = C where: R = stated annual interest rate i = periodic interest rate (365 days) n = number of periods to be compounded P = principal ITLITL = compounded value

This series of calculations can also be placed on a worksheet and calculated using the formula feature. For spreadsheet programs, the following formulas are needed based on the placement of information in named cells:

Daily Compounding


This process is carried forward to as many days as you need. A fast shortcut for finding the effective daily rate for a large number of days is to multiply the daily rate (A3) by itself for as many days as needed (remembering that the initial sum is the first day).

* Example: For the rate applicable on the 20th day, multiply the rate 19 more times by itself. You can do this on any calculator by entering the amount, then the multiplication ( ) button, and then the equals ( ) button 19 times. In the case of the 7.5% annual (compounded daily), the 20th day's rate is:

1.000205520 = 1.0041180

Next, multiply this by $8,000.00:

1.0041180 X $8,000.00 = $8,032.94

The outcome for 20 days based on the spreadsheet formula is summarized in Table 1-1.

The formula for calculating the daily debt (principal plus interest) is also called the accumulated value of 1. A visual representation of the concept of compounding interest on a single deposit is shown in Figure 1-1.


Excerpted from The Manager's Pocket Calculator by Michael C. Thomsett Copyright © 2010 by Michael C. Thomsett. Excerpted by permission of AMACOM. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Read More Show Less

Customer Reviews

Be the first to write a review
( 0 )
Rating Distribution

5 Star


4 Star


3 Star


2 Star


1 Star


Your Rating:

Your Name: Create a Pen Name or

Barnes & Review Rules

Our reader reviews allow you to share your comments on titles you liked, or didn't, with others. By submitting an online review, you are representing to Barnes & that all information contained in your review is original and accurate in all respects, and that the submission of such content by you and the posting of such content by Barnes & does not and will not violate the rights of any third party. Please follow the rules below to help ensure that your review can be posted.

Reviews by Our Customers Under the Age of 13

We highly value and respect everyone's opinion concerning the titles we offer. However, we cannot allow persons under the age of 13 to have accounts at or to post customer reviews. Please see our Terms of Use for more details.

What to exclude from your review:

Please do not write about reviews, commentary, or information posted on the product page. If you see any errors in the information on the product page, please send us an email.

Reviews should not contain any of the following:

  • - HTML tags, profanity, obscenities, vulgarities, or comments that defame anyone
  • - Time-sensitive information such as tour dates, signings, lectures, etc.
  • - Single-word reviews. Other people will read your review to discover why you liked or didn't like the title. Be descriptive.
  • - Comments focusing on the author or that may ruin the ending for others
  • - Phone numbers, addresses, URLs
  • - Pricing and availability information or alternative ordering information
  • - Advertisements or commercial solicitation


  • - By submitting a review, you grant to Barnes & and its sublicensees the royalty-free, perpetual, irrevocable right and license to use the review in accordance with the Barnes & Terms of Use.
  • - Barnes & reserves the right not to post any review -- particularly those that do not follow the terms and conditions of these Rules. Barnes & also reserves the right to remove any review at any time without notice.
  • - See Terms of Use for other conditions and disclaimers.
Search for Products You'd Like to Recommend

Recommend other products that relate to your review. Just search for them below and share!

Create a Pen Name

Your Pen Name is your unique identity on It will appear on the reviews you write and other website activities. Your Pen Name cannot be edited, changed or deleted once submitted.

Your Pen Name can be any combination of alphanumeric characters (plus - and _), and must be at least two characters long.

Continue Anonymously

    If you find inappropriate content, please report it to Barnes & Noble
    Why is this product inappropriate?
    Comments (optional)