Essential Financial Formulas You Should Know

By Kristi Waterworth – Updated Apr 30, 2025 at 10:22 PM

Key Points

Learn to calculate inflation using recent and past prices to gauge economic conditions.
Utilize the P/E ratio to assess if a stock is priced appropriately compared to earnings.
Understand dividend payout ratios to evaluate the sustainability of stock dividends.

Investors do a lot more math than you might expect, especially when it comes to financial calculations. If you don't understand how the math works during earnings season, you'll never be sure your investment is doing what it should. That's why we've put together this short article about common financial calculations you should know.

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Hand typing on a calculator. — Image source: Getty Images.

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Someone writing a complex mathematical equation on a chalkboard. — Image source: Getty Images.

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4. Return on assets

Return on assets is another financial ratio that can help you determine a company's profitability. This time, however, profitability is set against the company's assets. Here, we're looking at how efficiently the company uses assets to generate revenue over time. You want this number to be high, but you also want it to be somewhat in line with its competition.

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Return on Assets (ROA)

A financial metric that tells you how much profit a company generates relative to the value of its assets.

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Cash Flow

Cash flow is how we measure the actual money flowing through a business that can sometimes be hidden behind complexities.

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Person with hands on hips and looking at a blackboard full of math formulas. — Image source: Getty Images.

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How to Calculate the Ratio of a Selling Price to an Asking Price

Calculating the ratio of selling to asking price is useful knowledge during any transaction that involves a negotiated price.

How to Calculate Percentages of Total Revenue

Calculating percentages of total revenue is a powerful technique for analyzing companies' operating performance.

How to Calculate Weighted Average Price Per Share

Weighted average price per share can help you assess the performance of an investment that was made in several transactions.

How to Calculate Interest Expenses on a Payable Bond

How to calculate interest expense under three scenarios: bonds sold at a discount, at premium, and at face value.

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About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

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