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
``````