JAIIB AFM Formula Sheet 2026 — All Formulas for Paper III (Printable)
Paper III (Accounting & Financial Management for Bankers) is the most numerical paper in JAIIB. Most candidates who fail AFM fail because they read the textbook without solving enough problems — and because they do not have a formula sheet to revise from the night before the exam. This page covers every formula you need for JAIIB AFM 2026, organised by topic, with one worked example for each.
How to use this: Print this page (Ctrl+P → Save as PDF → A4, Background graphics ON). Review once a day in the final 2 weeks. Solve at least 5 numericals per formula cluster per week.
1. Ratio Analysis
Ratio analysis typically accounts for 20–25 MCQs in AFM — the highest single topic weight. Master this first.
| Ratio | Formula | What it tells you |
|---|---|---|
| Current Ratio | Current Assets ÷ Current Liabilities | Short-term liquidity. Ideal: 2:1 |
| Quick Ratio (Acid Test) | (CA − Inventory − Prepaid) ÷ CL | Immediate liquidity. Ideal: 1:1 |
| Debt-Equity Ratio | Long-term Debt ÷ Shareholders’ Equity | Leverage / financial risk |
| Proprietary Ratio | Shareholders’ Equity ÷ Total Assets | Proportion of assets financed by owners |
| Gross Profit Ratio | (Gross Profit ÷ Net Sales) × 100 | Core trading profitability |
| Net Profit Ratio | (Net Profit after Tax ÷ Net Sales) × 100 | Overall profitability |
| Return on Equity (ROE) | (Net Profit after Tax ÷ Shareholders’ Equity) × 100 | Return to equity shareholders |
| Return on Assets (ROA) | (Net Profit after Tax ÷ Total Assets) × 100 | Efficiency of asset utilisation |
| Debtors Turnover | Net Credit Sales ÷ Average Debtors | How quickly debtors pay |
| Debtors Collection Period | 365 ÷ Debtors Turnover Ratio | Average days to collect receivables |
| Inventory Turnover | COGS ÷ Average Inventory | How quickly inventory is sold |
| Creditors Turnover | Net Credit Purchases ÷ Average Creditors | How quickly the firm pays its suppliers |
| Fixed Assets Turnover | Net Sales ÷ Net Fixed Assets | Efficiency of fixed asset use |
| Interest Coverage Ratio | EBIT ÷ Interest Charges | Ability to service debt |
• Current Ratio = 8,00,000 ÷ 4,00,000 = 2.0 (ideal)
• Quick Ratio = (8,00,000 − 2,50,000) ÷ 4,00,000 = 1.375
2. Time Value of Money (TVM)
| Concept | Formula | Variables |
|---|---|---|
| Simple Interest | SI = P × R × T ÷ 100 | P=Principal, R=Rate%, T=Time(years) |
| Compound Interest — FV | FV = PV × (1 + r)ⁿ | r=rate per period, n=no. of periods |
| Present Value | PV = FV ÷ (1 + r)ⁿ | Discounting future value to today |
| Effective Annual Rate (EAR) | EAR = (1 + r/m)ᵐ − 1 | m = compounding frequency per year |
| Annuity (ordinary) — PV | PVA = PMT × [1 − (1+r)⁻ⁿ] ÷ r | PMT at end of each period (e.g. EMI) |
| Annuity (ordinary) — FV | FVA = PMT × [(1+r)ⁿ − 1] ÷ r | Future value of recurring deposits |
| Annuity Due — PV | PVA(due) = PVA(ordinary) × (1 + r) | PMT at beginning of each period (lease) |
| Perpetuity PV | PV = PMT ÷ r | Infinite equal payments |
| EMI (loan repayment) | EMI = Loan ÷ PVIFA(r, n) | PVIFA value given in exam tables |
| Rule of 72 (doubling time) | Years to double = 72 ÷ Rate% | Quick mental estimate only |
Worked example — EMI: Loan ₹1,00,000 at 12% for 5 years. PVIFA(12%,5) = 3.605. EMI = 1,00,000 ÷ 3.605 = ₹27,740
3. Depreciation Methods
| Method | Formula | Key point |
|---|---|---|
| Straight Line Method (SLM) | (Cost − Residual Value) ÷ Useful Life | Equal annual depreciation. Book value reaches residual value exactly. |
| Written Down Value (WDV) | Rate% × Book Value at start of year | Higher depreciation early years. Book value never reaches zero. |
| SLM Rate% | [(Cost − Residual) ÷ (Cost × Life)] × 100 | Annual depreciation as % of cost |
| WDV Rate% | 1 − (Residual ÷ Cost)^(1/n) | Also written: [1 − ⁿ√(Scrap/Cost)] × 100 |
| Profit/Loss on Sale | Sale Proceeds − WDV at date of sale | Positive = profit; negative = loss on disposal |
• SLM = (5,00,000 − 50,000) ÷ 5 = ₹90,000/year
• WDV @ 20%: Year 1 = ₹1,00,000 | Year 2 = ₹80,000 | Year 3 = ₹64,000
4. Capital Budgeting
| Method | Formula / Decision rule |
|---|---|
| Payback Period (equal flows) | Initial Investment ÷ Annual Cash Inflow |
| Net Present Value (NPV) | Σ[CFₜ ÷ (1+r)ⁿ] − Initial Investment. Accept if NPV ≥ 0 |
| Profitability Index (PI) | PV of Inflows ÷ Initial Investment. Accept if PI ≥ 1 |
| Internal Rate of Return (IRR) | Rate at which NPV = 0. Accept if IRR ≥ cost of capital |
| IRR — Interpolation | r₁ + [NPV₁ ÷ (NPV₁ − NPV₂)] × (r₂ − r₁) |
| Accounting Rate of Return (ARR) | (Average Annual Profit ÷ Average Investment) × 100 |
IRR = 10 + [5,000 ÷ (5,000+3,000)] × (15−10) = 10 + (5/8×5) = 10 + 3.125 = 13.13%
5. Cost of Capital
Cost of capital questions appear regularly in AFM — know all four components and how WACC is assembled.
| Component | Formula | Note |
|---|---|---|
| Cost of Debt (after-tax) — Kd | Kd = Pre-tax Cost × (1 − Tax Rate) | Interest is tax-deductible → tax shield reduces cost |
| Cost of Preference Shares — Kp | Kp = Preference Dividend ÷ Net Proceeds × 100 | No tax deductibility on preference dividend |
| Cost of Equity — Ke (Dividend Model) | Ke = D₁ ÷ P₀ + g | Gordon’s model: D₁=next dividend, g=growth rate |
| Cost of Equity — Ke (CAPM) | Ke = Rf + β × (Rm − Rf) | Rf=risk-free rate, β=beta, Rm=market return |
| Cost of Retained Earnings — Kr | Kr = Ke (opportunity cost basis) | Retained earnings have the same cost as equity |
| WACC | WACC = Σ (Weight × Cost of each component) | Use market-value weights; serves as NPV discount rate |
After-tax Kd = 10% × 0.70 = 7%. WACC = (6/10 × 15%) + (4/10 × 7%) = 9% + 2.8% = 11.8%
CAPM example: Rf=6%, β=1.2, Rm=14% → Ke = 6 + 1.2×(14−6) = 6 + 9.6 = 15.6%
6. Leverage Analysis
Leverage measures how sensitive profit is to changes in sales (operating) or to the use of debt (financial). Both types are tested in AFM.
| Type | Formula | What it measures |
|---|---|---|
| Operating Leverage (DOL) | Contribution ÷ EBIT | % change in EBIT for 1% change in sales |
| Financial Leverage (DFL) | EBIT ÷ (EBIT − Interest) | % change in EPS for 1% change in EBIT |
| Combined Leverage (DCL) | DOL × DFL = Contribution ÷ (EBIT − Interest) | % change in EPS for 1% change in sales |
| EBIT | Contribution − Fixed Operating Costs | Earnings Before Interest and Tax |
| EBT / PBT | EBIT − Interest | Earnings Before Tax (Profit Before Tax) |
Contribution = 10,00,000 − 6,00,000 = ₹4,00,000
EBIT = 4,00,000 − 1,50,000 = ₹2,50,000
DOL = 4,00,000 ÷ 2,50,000 = 1.6
DFL = 2,50,000 ÷ (2,50,000 − 50,000) = 2,50,000 ÷ 2,00,000 = 1.25
DCL = 1.6 × 1.25 = 2.0 → 1% rise in sales → 2% rise in EPS
7. Bond Valuation and Yield
| Concept | Formula | Note |
|---|---|---|
| Bond Price | P = C × PVIFA(r,n) + FV × PVIF(r,n) | C=annual coupon, FV=face value, r=market yield |
| Coupon (annual) | Coupon = Face Value × Coupon Rate% | Fixed cash flow paid by issuer |
| Current Yield | Annual Coupon ÷ Current Market Price × 100 | Ignores capital gain/loss at maturity |
| Yield to Maturity (YTM) — approx. | [C + (FV − P)/n] ÷ [(FV + P)/2] × 100 | Approximate formula; exact YTM uses IRR method |
| Bond Price rules (critical) | Coupon rate = Yield → Price = Face Value (par) Coupon rate < Yield → Price < FV (discount) Coupon rate > Yield → Price > FV (premium) |
Most frequently tested concept in bond questions |
| Duration (Macaulay) | Weighted avg time to receive all cash flows | Longer duration → more sensitive to rate changes |
Since yield (12%) > coupon (10%) → bond trades at discount.
Price = 100 × PVIFA(12%,3) + 1,000 × PVIF(12%,3) = 100×2.402 + 1,000×0.712 = 240.2 + 712 = ₹952.20
8. Break-Even Analysis and Marginal Costing
| Concept | Formula |
|---|---|
| Contribution (per unit) | Selling Price − Variable Cost per unit |
| P/V Ratio (Contribution Margin%) | (Contribution ÷ Sales) × 100 = 1 − VC/Sales ratio |
| BEP (units) | Fixed Costs ÷ Contribution per unit |
| BEP (sales ₹) | Fixed Costs ÷ P/V Ratio |
| Margin of Safety (₹) | Actual Sales − BEP Sales |
| Margin of Safety Ratio | (Actual Sales − BEP Sales) ÷ Actual Sales × 100 |
| Target Profit (units) | (Fixed Costs + Target Profit before tax) ÷ Contribution per unit |
| Target Sales (after-tax profit) | Required PBT = Desired PAT ÷ (1 − Tax Rate). Then: (FC + PBT) ÷ P/V Ratio |
9. Standard Costing Variances
Variance analysis — comparing standard (planned) cost against actual cost — is a Module D staple. Know the sign convention: Favourable (F) = actual cost lower than standard; Adverse/Unfavourable (A) = actual cost higher than standard.
| Variance | Formula | F or A? |
|---|---|---|
| Material Cost Variance (MCV) | Standard Cost of Actual Output − Actual Cost | Positive = F | Negative = A |
| Material Price Variance (MPV) | (Standard Price − Actual Price) × Actual Quantity | SP > AP = Favourable |
| Material Usage Variance (MUV) | (Standard Qty − Actual Qty) × Standard Price | SQ > AQ = Favourable |
| Labour Rate Variance (LRV) | (Standard Rate − Actual Rate) × Actual Hours | SR > AR = Favourable |
| Labour Efficiency Variance (LEV) | (Standard Hours − Actual Hours) × Standard Rate | SH > AH = Favourable |
| Labour Cost Variance (LCV) | LRV + LEV = (SH × SR) − (AH × AR) | Total labour cost variance |
| Fixed OH Volume Variance | (Actual Output − Budgeted Output) × Standard Fixed OH rate per unit | Output > budget = Favourable |
| Fixed OH Expenditure Variance | Budgeted Fixed OH − Actual Fixed OH | Actual < Budget = Favourable |
MPV = (10−12) × 2,000 = ₹4,000 Adverse (paid more per kg)
MUV = (1,800−2,000) × 10 = ₹2,000 Adverse (used more kg than standard)
MCV = 4,000A + 2,000A = ₹6,000 Adverse
10. Inventory Management (EOQ)
| Concept | Formula |
|---|---|
| Economic Order Quantity (EOQ) | EOQ = √(2 × Annual Demand × Ordering Cost ÷ Holding Cost per unit) |
| Total Annual Ordering Cost | (Annual Demand ÷ EOQ) × Ordering Cost per order |
| Total Annual Holding Cost | (EOQ ÷ 2) × Holding Cost per unit |
| Reorder Level | Maximum Usage × Maximum Lead Time |
| Minimum Stock Level | Reorder Level − (Average Usage × Average Lead Time) |
| Maximum Stock Level | Reorder Level + EOQ − (Minimum Usage × Minimum Lead Time) |
EOQ = √(2 × 10,000 × 200 ÷ 5) = √(40,00,000 ÷ 5) = √8,00,000 = 894 units (approx.)
At EOQ, ordering cost = holding cost → minimum total inventory cost.
11. Working Capital and Cash Management
| Concept | Formula |
|---|---|
| Gross Working Capital | Total Current Assets |
| Net Working Capital | Current Assets − Current Liabilities |
| Operating Cycle / CCC | RM Period + WIP Period + FG Period + Debtors Period − Creditors Period |
| RM Holding Period | (Avg Raw Material Stock ÷ Raw Material Consumed per day) |
| MPBF — Tandon Method I | 75% × (Total CA) − Current Liabilities (other than bank borrowing) |
| MPBF — Tandon Method II | 75% × (CA − Core CA) − Current Liabilities (other than bank borrowing) |
| Cash Budget — Net position | Opening Balance + Cash Inflows − Cash Outflows |
12. Banking-Specific Ratios and NPA Provisions
| Concept | Formula | Benchmark |
|---|---|---|
| Capital Adequacy Ratio (CAR / CRAR) | (Tier I + Tier II Capital) ÷ Risk-Weighted Assets × 100 | Minimum 11.5% (India, Basel III) |
| Net Interest Margin (NIM) | (Interest Income − Interest Expense) ÷ Avg Earning Assets × 100 | Higher = more profitable lending |
| GNPA Ratio | Gross NPAs ÷ Gross Advances × 100 | Asset quality indicator |
| Provision Coverage Ratio (PCR) | Total Provisions ÷ Gross NPAs × 100 | RBI minimum: 70% |
| DSCR | Net Operating Income ÷ Total Debt Service (P + I) | Minimum 1.50 for project finance |
| Yield on Advances | Interest Income from Advances ÷ Average Advances × 100 | Effectiveness of lending portfolio |
NPA Provisioning Requirements (RBI Norms)
| Asset Classification | Secured Provision | Unsecured Provision |
|---|---|---|
| Sub-Standard (up to 12 months NPA) | 15% | 25% |
| Doubtful — D1 (12–24 months NPA) | 25% | 100% |
| Doubtful — D2 (24–36 months NPA) | 40% | 100% |
| Doubtful — D3 (more than 36 months NPA) | 100% | 100% |
| Loss Assets | 100% | 100% |
13. Accounting Principles and Journal Entry Rules
- Golden Rules: Personal A/c: Debit the receiver, Credit the giver. Real A/c: Debit what comes in, Credit what goes out. Nominal A/c: Debit all expenses and losses, Credit all incomes and gains.
- Balance Sheet equation: Assets = Liabilities + Capital (Owner’s Equity)
- Trial Balance: Total Debits = Total Credits (checks arithmetic, not conceptual errors)
- Closing Stock: Credit side of Trading A/c AND asset in Balance Sheet (valued at cost or NRV, whichever lower)
- Gross Profit: Sales − COGS. COGS = Opening Stock + Purchases − Closing Stock
- Net Profit: Gross Profit + Other Income − Operating Expenses − Depreciation − Interest − Tax
- Cash Profit: Net Profit + Depreciation (add back non-cash charges)
- Adjusting entries: Outstanding expense → add to P&L, create liability. Prepaid expense → deduct from P&L, create asset. Accrued income → add to P&L, create asset.
- Deferred Tax: DTL when taxable income < accounting profit (tax deferred to future). DTA when taxable income > accounting profit (tax paid in advance).
14. Quick-Reference: Key Numbers to Remember
| Item | Value / Benchmark |
|---|---|
| Ideal Current Ratio | 2:1 |
| Ideal Quick Ratio | 1:1 |
| CAR minimum — India (Basel III) | 11.5% (Tier I CET1 minimum: 5.5% + CCB 2.5%; Total Tier I min: 9.5%) |
| Provision Coverage Ratio (PCR) | Minimum 70% (RBI) |
| DSCR for project finance | Minimum 1.50 |
| SLR (Statutory Liquidity Ratio) | 18% of NDTL |
| CRR (Cash Reserve Ratio) | 4% of NDTL |
| Income Tax depreciation method | WDV only (under Income Tax Act 1961) |
| Inventory valuation (AS-2) | Lower of Cost or Net Realisable Value (NRV) |
| Bond at par | When coupon rate = market yield |
| Optimum capital structure (MM with tax) | Some debt is optimal (interest tax shield) |
| At BEP | Profit = 0 | Contribution = Fixed Costs | MOS = 0 |
| MPBF (Tandon Method II) | 75% of (CA − CCA) − OCL |
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How many numericals are asked in JAIIB AFM?
Typically 35–45 out of 100 MCQs in AFM require numerical calculation. Ratio analysis, TVM (compound interest, present value, EMI), depreciation, leverage, and break-even questions are the most frequent. The remaining 55–65 are conceptual or definition-based. Module C (Financial Management) is the heaviest calculation section.
Are calculators allowed in JAIIB AFM exam?
No. Calculators are not permitted in the JAIIB CBT exam. Only the basic on-screen calculator provided in the test interface may be used. IIBF frames numerical questions with clean round numbers so that multi-step calculations can be done within the time limit. Knowing formulas by heart and practising mental shortcuts (like Rule of 72) is therefore essential.
Which is the hardest topic in JAIIB AFM?
Most candidates find Time Value of Money (TVM), Capital Budgeting (NPV and IRR), and Leverage Analysis the most challenging because these require multi-step calculations without a calculator. Standard Costing Variances also trip up many candidates who mix up the sign convention (Favourable vs Adverse). Start with Ratio Analysis and Depreciation to build confidence, then tackle TVM and leverage.
What is the passing mark for JAIIB AFM?
If you appear for all 4 JAIIB papers in the same attempt: minimum 45 out of 100 per paper (aggregate 200/400 required). If you appear for AFM as a standalone paper after clearing others: 50 out of 100. There is no negative marking in JAIIB, so attempt every question.
What is WACC and why is it important for JAIIB AFM?
WACC (Weighted Average Cost of Capital) is the blended cost of all capital sources — equity, preference shares, and debt — weighted by their proportion in the capital structure. It is used as the discount rate in NPV calculations and as the hurdle rate for IRR comparison. WACC = Σ(Weight × Cost of component). The after-tax cost of debt is used because interest is tax-deductible.
What is the difference between DOL and DFL in JAIIB AFM?
DOL (Degree of Operating Leverage) = Contribution ÷ EBIT. It measures how much EBIT changes for a 1% change in sales — driven by fixed operating costs. DFL (Degree of Financial Leverage) = EBIT ÷ (EBIT − Interest). It measures how much EPS changes for a 1% change in EBIT — driven by interest (fixed financial cost). DCL = DOL × DFL shows the combined effect on EPS for a 1% change in sales.
How is bond price related to yield in JAIIB AFM?
Three rules cover all bond price questions: (1) If coupon rate = market yield → bond trades at par (face value). (2) If coupon rate < market yield → bond trades at a discount (price market yield → bond trades at a premium (price > face value). Bond price and yield always move in opposite directions.
For 100 practice questions covering all these formulas with step-by-step solutions, visit the JAIIB AFM MCQ page. For the full JAIIB hub with all papers, visit the JAIIB 2026 Complete Hub.