Financial Markup - Compounding Examples
Updated
Suggested Prior Reading
Compounding Examples
If more than one Financial Markup is entered, all the Financial Markups (the percentage) is calculated by multiplying the markup rate by the Amount for the Line item, however, they can be set to compound or not.
Compound means that the Financial Markup is calculated on the Amount plus any previous Markup amounts calculated before it.
Not Compounding indicates that each Financial Markup Amount is calculated just on the Amount. Any previous Financial Markup Amounts does not have an impact.
The following are examples of how the compounding works with the following:
The Line Item Amount is $1,000.
There are three financial markup amounts.
- Financial Markup 1 = 10%
- Financial Markup 2 = 5%
- Financial Markup 3 = 3%
As many Financial Markups as required can be entered. This is just an example using three.
The order of the Financial Markups impacts how compounding works. The Financial Markups compounding is processed in the order of the Financial Markups in the list.
Examples are below for the following compunding scenarios:
Example 1 - No Compounding
Example 2 - Only the first Financial Markup is Compounding
Example 3 - Only the Second Financial Markup is Compounding
Example 4 - All Markups are Compounding
Example 5 - Only the last Financial Markup is Compounding
Example 1 - No Compounding
None of the Financial Markup Amounts are compounding. Therefore, each Financial Markup Amount is calculated by taking the Amount and multiplying by the Financial Markup Percent.
Financial Markup Amount = Amount x Financial Markup Percentage
- Financial Markup Amount 1 = $1,000 x 10% = $100
- Financial Markup Amount 2 = $1,000 x 5% = = $50
- Financial Markup Amount 3 = $1,000 x 3% = $30
Subtotal for the line item = Amount + all Financial Markup Amounts
- Subtotal for the line item = $1,000 + $100 + $50 + $30 = $1,180
Tax = (Amount + all Financial Markup Amounts) * Tax Percent
- Tax = $1,180 x 6% = $70.80
Example 2 - Only the first Financial Markup is Compounding
Financial Markup 1 is compounding. Financial Markup 2 and Financial Markup 3 are not compounding.
If Financial Markup 1 is set to compounding, but 2 and 3 are not - then there is no impacts as it is the first markup and there are no previous markups to compound on. So essentially it will result in the same amounts as Example 1:
Financial Markup 1 Amount = (Amount + Financial Markup Amounts for any markups before it) x Financial Markup 1 Percentage
- Financial Markup Amount 1 = ($1,000 + $0) x 10% = $100
Financial Markup 1 is the first markup in the list so there are no Financial Markup Amounts before it (so essentially it is the same as not compounding)
- Financial Markup Amount 2 = $1,000 x 5% = = $50
- Financial Markup Amount 3 = $1,000 x 3% = $30
Subtotal for the line item = Amount + all Financial Markup Amounts
- Subtotal for the line item = $1,000 + $100 + $50 + $30 = $1,180
Tax = (Amount + all Financial Markup Amounts) * Tax Percent
- Tax = $1,180 x 6% = $70.80
Example 3 - Only the Second Financial Markup is Compounding
Financial Markup 2 is compounding. Financial Markup 1 and Financial Markup 3 are not compounding.
Financial Markup 1 Amount = Amount x Financial Markup 1 Percentage
- Financial Markup Amount 1 = $1,000 x 10% = $100
Financial Markup Amount 2 Compounded = (Amount + Financial Markup Amount 1) x Financial Markup 2 Percentage
- Financial Markup Amount 2 Compounded = ($1,000 + $100) x 5% = $55
Financial Markup 3 Amount = Amount x Financial Markup 3 Percentage
- Financial Markup Amount 3 = $1,000 x 3% = $30
Subtotal for the line item = Amount + all Financial Markup Amounts
- Subtotal for the line item = $1,000 + $100 + $55 + $30 = $1,185
Tax = (Amount + all Financial Markup Amounts) * Tax Percent
- Tax = $1,185 x 6% = $71.10
Financial Markup Amount 2 is calculated on the Amount plus the Financial Markup Amount 1 (i.e. based on the compounding)
Example 4 - All Markups are Compounding
Financial Markup 1, 2 and 3 are compounding.
Financial Markup 1 Amount Compounded = (Amount + Financial Markup Amounts for any markups before it) x Financial Markup 1 Percentage
- Financial Markup Amount 1 Compounded = ($1,000 + $0) x 10% = $100
Financial Markup 1 is the first markup in the list so there are no Financial Markup Amounts before it (so essentially it is the same as not compounding)
Financial Markup Amount 2 Compounded = (Amount + Financial Markup Amount 1) x Financial Markup 2 Percentage
- Financial Markup Amount 2 Compounded = ($1,000 + $100) x 5% = $55
Financial Markup Amount 3 Compounded = (Amount + Financial Markup Amount 1 + Financial Markup Amount 2) x Financial Markup 3 Percentage
- Financial Markup Amount 3 Compounded = ($1,000 + $100 + $55) x 3% = $34.65
Subtotal for the line item = Amount + all Financial Markup Amounts
- Subtotal for the line item = $1,000 + $100 + $55 + $34.65 = $1,189.65
Tax = (Amount + all Financial Markup Amounts) * Tax Percent
- Tax = $1,189.65 x 6% = $71.38
Financial Markup Amount 2 is calculated on the Amount plus the Financial Markup Amount 1 (i.e. based on the compounding)
Financial Markup Amount 3 is calculated on the Amount plus the Financial Markup Amount 1 plus the Financial Markup Amount 2 (i.e. based on the compounding)
Example 5 - Only the last Financial Markup is Compounding
Only Financial Markup 3 is compounding.
Financial Markup 1 Amount = Amount x Financial Markup 1 Percentage
- Financial Markup Amount 1 = $1,000 x 10% = $100
Financial Markup 2 Amount = Amount x Financial Markup 2 Percentage
- Financial Markup Amount 2 = $1,000 x 5% = = $50
Financial Markup Amount 3 Compounded = (Amount + Financial Markup Amount 1 + Financial Markup Amount 2) x Financial Markup 3 Percentage
- Financial Markup Amount 3 Compounded = ($1,000 + $100 + $50) x 3% = $34.50
Subtotal for the line item = Amount + all Financial Markup Amounts
- Subtotal for the line item = $1,000 + $100 + $50 + $34.50 = $1,184.50
Tax = (Amount + all Financial Markup Amounts) * Tax Percent
- Tax = $1,184.50 x 6% = $71.07
Financial Markup Amount 3 is calculated on the Amount plus the Financial Markup Amount 1 plus the Financial Markup Amount 2 (i.e. based on the compounding)
Next Steps
Add a Financial Markup, see Financial Markup - Add.
Edit a Financial Markup, see Financial Markup - Edit.
Set the order the Financial Markups display or are used in Compounding, see Financial Markup - Setting the Order.
Delete a Financial Markup, see Financial Markup - Delete.
