UGC NET COMMERCE
Complete Theories, Formulas & Index Deductions
Quick Revision Reference · All Units Covered
Unit Topic
1 Accounting & Financial Analysis
2 Business Finance & Capital Structure
3 Business Statistics & Research
4 Business Economics (Micro & Macro)
5 Marketing Management
6 Human Resource Management
7 Business Environment & Policy
8 Income Tax – Deductions (Individuals)
UNIT 1 – ACCOUNTING & FINANCIAL ANALYSIS
1.1 Accounting Equation & Double Entry
Fundamental Accounting Equation
Assets = Liabilities + Owner's Equity
Assets = Capital + Liabilities
Capital = Assets – Liabilities
1.2 Financial Statements
Gross Profit & Net Profit
Gross Profit = Net Sales – Cost of Goods Sold (COGS)
COGS = Opening Stock + Purchases + Direct Expenses – Closing Stock
Net Profit = Gross Profit – Operating Expenses – Non-Operating Expenses
Net Profit (After Tax) = EBT – Tax
1.3 Ratio Analysis
Ratio Formula Benchmark
Current Ratio Current Assets / Current Liabilities 2:1 ideal
(Current Assets – Stock – Prepaid) / Current
Quick (Acid-Test) Ratio 1:1 ideal
Liabilities
(Cash + Bank + Marketable Securities) /
Cash Ratio Higher better
Current Liabilities
Gross Profit Ratio (Gross Profit / Net Sales) × 100 %
Net Profit Ratio (Net Profit / Net Sales) × 100 %
Operating Profit Ratio (Operating Profit / Net Sales) × 100 %
Return on Capital Employed (ROCE) (EBIT / Capital Employed) × 100 %
(Net Profit after Tax / Shareholders' Equity)
Return on Equity (ROE) %
× 100
(Net Profit after Tax – Preference Dividend) /
EPS Per share
No. of Equity Shares
Debt-Equity Ratio Long-term Debt / Shareholders' Equity 2:1 max
Proprietary Ratio Shareholders' Equity / Total Assets Higher better
Fixed Interest Bearing Capital / Equity
Capital Gearing Ratio
Shareholders' Funds
Inventory Turnover Ratio COGS / Average Inventory Times
Debtors Turnover Ratio Net Credit Sales / Average Debtors Times
Creditors Turnover Ratio Net Credit Purchases / Average Creditors Times
Fixed Asset Turnover Net Sales / Net Fixed Assets Times
Ratio Formula Benchmark
Total Asset Turnover Net Sales / Total Assets Times
Working Capital Turnover Net Sales / Net Working Capital Times
Interest Coverage Ratio EBIT / Interest Charges Higher safer
(Dividend per Share / Market Price per
Dividend Yield %
Share) × 100
P/E Ratio Market Price per Share / EPS Multiple
1.4 Funds Flow & Cash Flow
Funds Flow Statement
Changes in Working Capital = Current Assets – Current Liabilities
Increase in WC = Source of Funds; Decrease = Application
Funds from Operations = Net Profit + Non-cash Charges (Depreciation, Amortization)
Cash Flow (Indirect Method – Operating Activities)
CFO = Net Income + Depreciation + Changes in Working Capital
Free Cash Flow (FCF) = CFO – Capital Expenditure
Net Cash Flow = CFO + CFI + CFF
1.5 Depreciation Methods
Method Formula
Straight Line Method (SLM) (Cost – Scrap Value) / Useful Life
Written Down Value (WDV) Book Value × Rate%
Annuity Method Equal annual charge including interest on cost
Sinking Fund Method Depreciation = Sinking Fund Installment
Machine Hour Rate Total Depreciation / Total Machine Hours
Depletion Method Cost of Asset / Total Units × Units Used in Period
UNIT 2 – BUSINESS FINANCE & CAPITAL STRUCTURE
2.1 Cost of Capital
Cost of Debt (Kd)
Kd = I(1 – t) / P■
Where: I = Annual Interest, t = Tax Rate, P■ = Net Proceeds
Kd (Approx.) = [I(1-t) + (RV – NP)/n] / [(RV + NP)/2]
Cost of Preference Share (Kp)
Kp = D / P■ (Irredeemable)
Kp (Approx.) = [D + (RV – NP)/n] / [(RV + NP)/2] (Redeemable)
Cost of Equity (Ke)
Dividend Growth Model: Ke = D■/P■ + g
CAPM: Ke = Rf + β(Rm – Rf)
Earnings Yield: Ke = EPS / Market Price
Weighted Average Cost of Capital (WACC)
WACC = Σ(Weight of Component × Cost of Component)
WACC = (E/V)×Ke + (D/V)×Kd(1-t) + (P/V)×Kp
Where V = E + D + P (total capital)
2.2 Capital Structure Theories
Theory Key Formula / Concept Author
Value of Firm ↑ with Debt; Ke & Kd constant;
Net Income Approach (NI) Durand
Optimum = Max Debt
Value of Firm constant regardless of
Net Operating Income (NOI) Durand
leverage; No optimal structure
Optimum capital structure exists at a point
Traditional Approach Solomon
before Ke rises sharply
V(L) = V(U); Capital structure irrelevant; No
MM Without Tax Modigliani & Miller
taxes assumed
V(L) = V(U) + t×D; More debt → Higher firm
MM With Tax Modigliani & Miller
value due to tax shield
Optimal structure: PV(Tax Shield) =
Trade-off Theory
PV(Financial Distress Cost)
Preference: Retained Earnings > Debt >
Pecking Order Theory Myers & Majluf
Equity
2.3 Leverage
Concept Formula
Operating Leverage (OL) Contribution / EBIT OR % Change in EBIT / % Change in Sales
Financial Leverage (FL) EBIT / EBT OR % Change in EPS / % Change in EBIT
Combined Leverage (CL) OL × FL = Contribution / EBT
Contribution Sales – Variable Cost
EBIT Contribution – Fixed Cost
EBT EBIT – Interest
2.4 Working Capital Management
Working Capital Concepts
Net Working Capital = Current Assets – Current Liabilities
Operating Cycle = R + W + F + D – C
R = Raw Material storage period, W = WIP period
F = Finished Goods period, D = Debtors period, C = Creditors period
Cash Conversion Cycle = Inventory Days + Receivable Days – Payable Days
EOQ (Economic Order Quantity)
EOQ = √(2 × A × O / C)
Where: A = Annual Demand, O = Ordering Cost per Order, C = Carrying Cost per unit per year
Total Cost = Purchase Cost + Ordering Cost + Carrying Cost
2.5 Capital Budgeting
Method Formula
Payback Period Initial Investment / Annual Cash Inflow (if uniform)
ARR (Accounting Rate of Return) Avg Annual Net Profit after Tax / Avg Investment × 100
NPV (Net Present Value) Σ[CFt / (1+r)t] – Initial Investment
IRR (Internal Rate of Return) Rate where NPV = 0 (trial & interpolation method)
(NPV + Initial Investment) / Initial Investment OR PV of Inflows / PV
Profitability Index (PI)
of Outflows
Discounted Payback Period Like payback but uses discounted cash flows
IRR Interpolation Formula
IRR = L + [NPV_L / (NPV_L – NPV_H)] × (H – L)
Where L = Lower rate, H = Higher rate, NPV_L = NPV at lower rate, NPV_H = NPV at higher rate
2.6 Dividend Theories
Model Formula Author
P = (D + (r/Ke)(E – D)) / Ke If r > Ke: Retain;
Walter's Model Walter
r < Ke: Pay; r = Ke: Irrelevant
P = E(1–b) / (Ke – br) b = Retention Ratio, br
Gordon's Model Gordon
= Growth Rate
Dividend Irrelevant; P■ = (D■ + P■) /
MM Model MM
(1+Ke)
UNIT 3 – BUSINESS STATISTICS & RESEARCH METHODOLOGY
3.1 Measures of Central Tendency
Measure Formula
Arithmetic Mean (AM) AM = ΣX / N (ungrouped) AM = Σ(f·X) / Σf (grouped)
Geometric Mean (GM) GM = (X■·X■·…·Xn)^(1/n) OR Antilog(Σlog X / N)
Harmonic Mean (HM) HM = N / Σ(1/X)
Middle value (odd N); Average of 2 middle values (even N) Grouped:
Median
M = L + [(N/2 – cf) / f] × h
Mode Most frequent value Grouped: Z = L + [f■–f■ / (2f■–f■–f■)] × h
AM ≥ GM ≥ HM (for positive values) Mode = 3Median – 2Mean
Relationship
(approx.)
3.2 Measures of Dispersion
Measure Formula
Range R = Largest Value – Smallest Value Coeff. of Range = (L–S)/(L+S)
Mean Deviation (MD) MD = Σ|X – Mean| / N Coeff. of MD = MD / Mean
Variance (σ²) σ² = Σ(X–X■)² / N (population) s² = Σ(X–X■)² / (N–1) (sample)
Standard Deviation (σ) σ = √Variance Shortcut: σ = √[Σd² /N – (Σd/N)²]
Coefficient of Variation (CV) CV = (σ / Mean) × 100 [for comparing variability]
Quartile Deviation (QD) QD = (Q3 – Q1) / 2 Coeff. = (Q3–Q1)/(Q3+Q1)
3.3 Correlation & Regression
Correlation Coefficients
Karl Pearson's r = Σ(X–X■)(Y–■) / √[Σ(X–X■)²·Σ(Y–■)²]
Shortcut: r = [N·ΣXY – ΣX·ΣY] / √[(NΣX²–(ΣX)²)(NΣY²–(ΣY)²)]
Spearman's Rank: r = 1 – [6·Σd² / N(N²–1)]
Range of r: –1 ≤ r ≤ +1
Regression Equations
Y on X: Y = a + bX; byx = r·(σy/σx)
X on Y: X = a + bY; bxy = r·(σx/σy)
Relation: r² = byx × bxy (r = √(byx × bxy))
Both regression lines pass through (X■, ■)
3.4 Index Numbers
Index Formula
Simple Aggregative P■■ = (ΣP■ / ΣP■) × 100
Simple Average of Relatives P■■ = Σ[(P■/P■)×100] / N
Laspeyres' Index P■■ = ΣP■Q■ / ΣP■Q■ × 100 [base year qty weights]
Paasche's Index P■■ = ΣP■Q■ / ΣP■Q■ × 100 [current year qty weights]
P■■ = √(Laspeyres × Paasche) [satisfies time-reversal &
Fisher's Ideal Index
factor-reversal]
Marshall-Edgeworth P■■ = Σ P■(Q■+Q■) / Σ P■(Q■+Q■) × 100
Dorbish-Bowley P■■ = (Laspeyres + Paasche) / 2
Link Relative = (Current Period Value / Previous Period Value) × 100
Chain Index
Chain Index = (Link Relative × Previous Chain Index) / 100
CPI (Cost of Living) CPI = ΣPW / ΣW × 100 (Family Budget Method)
Deflated Value Real Value = (Nominal Value / Price Index) × 100
Tests for Index Numbers
Time Reversal Test: P■■ × P■■ = 1 (Fisher satisfies this)
Factor Reversal Test: P■■ × Q■■ = ΣP■Q■ / ΣP■Q■ (Fisher satisfies this)
Circular Test: P■■ × P■■ × P■■ = 1 (only simple aggregative satisfies)
3.5 Time Series Analysis
Component Formula / Method
Secular Trend Long-run movement; fitted by Least Squares: Yc = a + bX
Periodic fluctuations within a year; Seasonal Index = (Period Mean /
Seasonal Variation
Grand Mean) × 100
Cyclical Variation Business cycle fluctuations over years
Irregular Variation Random / unpredictable fluctuations
Moving Average (3-yr) MA■ = (Y■ + Y■ + Y■) / 3
Semi-Average Method Divide series in two halves; plot averages to get trend line
UNIT 4 – BUSINESS ECONOMICS (MICRO & MACRO)
4.1 Demand & Supply Analysis
Elasticity Formulas
Price Elasticity of Demand (PED) = % Change in Qd / % Change in Price
Point Method: PED = (∆Q/∆P) × (P/Q)
Arc Method: PED = [(Q■–Q■)/(P■–P■)] × [(P■+P■)/(Q■+Q■)]
Income Elasticity (YED) = % ∆Qd / % ∆Income (Normal >0; Inferior <0)
Cross Elasticity (XED) = % ∆Qd of A / % ∆P of B (Substitutes >0; Complements <0)
Supply Elasticity (PES) = % ∆Qs / % ∆P
4.2 Production & Cost Theory
Concept Formula
Total Product (TP) TP = AP × L (L = Labour units)
Average Product (AP) AP = TP / L
Marginal Product (MP) MP = ∆TP / ∆L
Total Fixed Cost (TFC) Constant; TFC does not change with output
Total Variable Cost (TVC) Changes with output
Total Cost (TC) TC = TFC + TVC
Average Fixed Cost (AFC) AFC = TFC / Q (always declining)
Average Variable Cost (AVC) AVC = TVC / Q (U-shaped)
Average Total Cost (ATC) ATC = TC / Q = AFC + AVC
Marginal Cost (MC) MC = ∆TC / ∆Q (U-shaped; MC = ATC at ATC minimum)
Producer's Surplus Area above supply curve and below market price
IRS: TC increases < proportionally; CRS: proportionally; DRS: more
Returns to Scale
than proportionally
4.3 Market Structures
Structure Key Condition
Perfect Competition P = MR = AR = MC (at equilibrium); Economic Profit = 0 (LR)
MR = MC (profit max); MR = AR(1 – 1/e); Monopoly Power =
Monopoly
(P–MC)/P = 1/PED
Monopolistic Competition MR = MC; AR > MR; Excess Capacity in LR
Oligopoly – Kinked Demand Price rigidity; Kink at current price; MR has a gap
Monopsony Single buyer; MFC > AVC; Employ where MFC = MRP
4.4 National Income Accounting
National Income Identities
GDP (Expenditure) = C + I + G + (X – M)
GDP (Income) = Wages + Rent + Interest + Profit + Mixed Income
NNP at MP = GNP at MP – Depreciation
NNP at FC (NI) = NNP at MP – Net Indirect Taxes
Personal Income = NI – Corporate Tax – Undistributed Profits + Transfer Payments
Disposable Income = Personal Income – Personal Tax
GNP = GDP + Net Factor Income from Abroad
4.5 Monetary & Fiscal Policy
Concept Formula
Money Multiplier m = 1 / Reserve Ratio (CRR)
Quantity Theory (Fisher) MV = PT (M=Money, V=Velocity, P=Price, T=Transactions)
Quantity Theory (Cambridge) M = kPY (k = proportion of income held as money)
Total Expenditure – Revenue Receipts – Capital Receipts (excl.
Fiscal Deficit
borrowings)
Revenue Deficit Revenue Expenditure – Revenue Receipts
Primary Deficit Fiscal Deficit – Interest Payments
Investment Multiplier k = 1 / (1 – MPC) = 1 / MPS
Tax Multiplier -MPC / (1–MPC) = -MPC / MPS
Balanced Budget Multiplier = 1 (always)
UNIT 5 – MARKETING MANAGEMENT
5.1 Market Share & Growth – BCG Matrix
Quadrant Characteristics Strategy
Stars High Market Share, High Growth Rate Invest heavily
Cash Cows High Market Share, Low Growth Rate Milk for cash
Question Marks Low Market Share, High Growth Rate Invest or divest
Dogs Low Market Share, Low Growth Rate Divest / liquidate
5.2 Pricing Formulas
Pricing Methods
Cost Plus Pricing: Price = Cost + Markup% × Cost
Markup % = (Price – Cost) / Cost × 100
Margin % = (Price – Cost) / Price × 100
Break-Even Point (units) = Fixed Cost / (Price – Variable Cost)
Break-Even Point (■) = Fixed Cost / P/V Ratio
P/V Ratio = Contribution / Sales = (S – VC) / S
Target ROI Price = (Cost + Desired Profit) = Cost + (ROI × Investment / Units)
5.3 Consumer Behaviour Models
Model Key Framework
Maslow's Hierarchy Physiological → Safety → Social → Esteem → Self-Actualization
Howard-Sheth Model Inputs → Perceptual & Learning constructs → Outputs
Problem Recognition → Search → Evaluation → Purchase →
EKB Model
Post-Purchase
Engel-Blackwell-Miniard Extended EKB with feedback loops
5.4 Market Metrics
Key Marketing Formulas
Market Share = (Company Sales / Total Market Sales) × 100
Customer Lifetime Value (CLV) = (Average Purchase Value × Purchase Frequency) × Customer Lifespan
Net Promoter Score (NPS) = % Promoters – % Detractors
Conversion Rate = (Conversions / Total Visitors) × 100
ROI on Marketing = (Revenue from Campaign – Marketing Cost) / Marketing Cost × 100
UNIT 6 – HUMAN RESOURCE MANAGEMENT
6.1 Performance & Wage Incentive Plans
Plan Formula / Description
Time Rate System Wages = Hours Worked × Rate per Hour
Piece Rate System Wages = Units Produced × Rate per Unit
Wages = (T × R) + 50% × Time Saved × R (50% of time saved given
Halsey Premium Plan
as bonus)
Rowan Plan Wages = (T × R) + (Time Saved / Standard Time) × T × R
Efficient worker: 120% of normal piece rate Inefficient: 80% of
Taylor's Differential Piece Rate
normal piece rate
Below standard: Day rate only At/above standard: 120–130% of
Gantt Task Bonus Plan
piece rate
Emerson Efficiency Plan Bonus based on efficiency % (starts at 67% efficiency)
6.2 Manpower Planning Formulas
Labour Turnover & Absenteeism
Labour Turnover (Separation Method) = (No. Separated / Avg Workers) × 100
Labour Turnover (Replacement Method) = (No. Replaced / Avg Workers) × 100
Labour Turnover (NLT / Flux Method) = (Separations + Replacements / Avg Workers) × 100
Absenteeism Rate = (Man-days Lost / Man-days Scheduled) × 100
6.3 HR Theories
Theory Key Concept
Maslow's Need Theory Hierarchy of 5 needs; lower needs satisfied first
Hygiene Factors (prevent dissatisfaction) + Motivators (create
Herzberg's Two-Factor
satisfaction)
McGregor's Theory X & Y Theory X: Employees lazy; Theory Y: Employees self-motivated
McClelland's Theory Need for Achievement (nAch), Affiliation (nAff), Power (nPow)
Vroom's Expectancy Theory Motivation = Expectancy × Instrumentality × Valence
Adams' Equity Theory Motivation depends on perceived fairness of input-output ratio
Alderfer's ERG Theory Existence, Relatedness, Growth (concurrent; frustration-regression)
UNIT 7 – BUSINESS ENVIRONMENT & TRADE POLICY
7.1 Balance of Payments (BoP)
BoP Identities
Current Account = Trade Balance + Invisibles (Services + Transfers + Income)
Trade Balance = Exports – Imports (Visible Trade)
Capital Account = FDI + FII + External Borrowings + Banking Capital
BoP = Current Account + Capital Account + Financial Account + Errors & Omissions
BoP (Overall) = 0 (always balances including reserves)
7.2 Exchange Rate Systems
Exchange Rate Formulas
PPP Theory: e = P_d / P_f (Domestic Price / Foreign Price)
Covered Interest Parity: F/S = (1+r_d) / (1+r_f)
Real Exchange Rate = Nominal Rate × (P_foreign / P_domestic)
Effective Exchange Rate = Trade-weighted average of bilateral rates
7.3 WTO & Trade Theories
Theory / Concept Description
Country produces good with fewer resources than another (Adam
Absolute Advantage
Smith)
Comparative Advantage Country specialises where opportunity cost is lower (Ricardo)
Heckscher-Ohlin Theorem Country exports good that uses its abundant factor intensively
Product Life Cycle Theory Vernon: New product → Mature → Standardized; then exports shift
Terms of Trade ToT = Export Price Index / Import Price Index × 100
Tariff Types Ad valorem: % of value; Specific: fixed per unit; Compound: both
UNIT 8 – INCOME TAX: KEY DEDUCTIONS (INDIVIDUALS)
8.1 Chapter VI-A Deductions
Section Eligible Expenditure / Investment Max Deduction (■)
LIC, PPF, ELSS, NSC, 5-yr FD, EPF, Tuition
80C ■1,50,000
Fees, Principal of Home Loan
80CCC Contribution to Pension Fund of LIC / Insurer Included in 80C limit
NPS contribution by Employee (10% of
80CCD(1) Included in 80C limit
Salary)
Additional NPS contribution (over & above
80CCD(1B) ■50,000 (separate)
80C)
Employer's NPS contribution (upto 10% of
80CCD(2) No ceiling limit
Basic+DA)
Medical Insurance Premium (Self/Family &
80D Self: ■25,000; Senior: ■50,000
Parents)
80DD Expenditure on disabled dependent ■75,000 (severe: ■1,25,000)
80DDB Medical treatment of specified diseases ■40,000; Senior: ■1,00,000
Interest on Education Loan (Higher
80E Actual interest; 8 yrs
Education)
Interest on Home Loan (First Home; up to
80EE ■50,000
■35L loan)
80EEA Interest on Home Loan (affordable housing) ■1,50,000
80G Donations to approved charitable funds 50% or 100% of donation
80GG Rent paid (no HRA received) Least of 3 conditions
Donations for scientific research / rural
80GGA 100%
development
80TTA Interest on Savings Account (Non-senior) ■10,000
80TTB Interest on deposits (Senior Citizens) ■50,000
80U Self (person with disability) ■75,000; Severe: ■1,25,000
8.2 Key Exemptions & Computation
Gross Total Income & Tax Computation
Gross Total Income (GTI) = Sum of income under all 5 heads
Total Income (TI) = GTI – Deductions u/s 80C to 80U
Heads of Income: Salary | House Property | Business/Profession | Capital Gains | Other Sources
Income from House Property = Annual Value – 30% Standard Deduction – Interest on Loan
Net Annual Value (NAV) = Gross Annual Value – Municipal Taxes
Annual Value = Higher of: Fair Rent, Municipal Value (capped at Standard Rent)
STCG (Listed equity < 12 months) → 15% flat tax
LTCG (Listed equity > 12 months, > ■1L) → 10% (no indexation)
LTCG (Others, > 24/36 months) → 20% with indexation benefit
Tax Slabs (Old Regime – FY 2024-25)
Upto ■2,50,000 → NIL
■2,50,001 – ■5,00,000 → 5%
■5,00,001 – ■10,00,000 → 20%
Above ■10,00,000 → 30%
Rebate u/s 87A: ■12,500 if TI ≤ ■5,00,000
Health & Education Cess: 4% on Tax + Surcharge
Surcharge: 10% (>■50L), 15% (>■1Cr), 25% (>■2Cr), 37% (>■5Cr)
Tax Slabs (New Regime – FY 2024-25)
Upto ■3,00,000 → NIL
■3,00,001 – ■6,00,000 → 5%
■6,00,001 – ■9,00,000 → 10%
■9,00,001 – ■12,00,000 → 15%
■12,00,001 – ■15,00,000 → 20%
Above ■15,00,000 → 30%
Rebate u/s 87A: ■25,000 if TI ≤ ■7,00,000
8.3 Heads of Income – Key Points
Head Key Points
Basic + DA + HRA + Allowances HRA Exemption: Min of (i) Actual
Salary
HRA (ii) 50%/40% of Salary (iii) Rent – 10% Salary
Self-occupied: Interest up to ■2,00,000 deductible Let-out: Actual
House Property
interest (no limit) + 30% standard deduction
All legitimate business expenses deductible; Depreciation under IT
Business/Profession
Act
Capital Gains STCG / LTCG depending on holding period; Indexation for LTCG
Other Sources Interest, Dividends, Lottery etc.; Lottery taxed at flat 30%
UGC NET Commerce – Quick Revision Reference
For academic use only. Verify latest amendments before exam. Covers: Accounting, Finance, Statistics, Economics, Marketing, HRM &
Taxation.