Assets = Liabilities + Equity
Net Working Capital = Current Assets - Current Liabilities
Current Ratio = Current Assets / Current Liabilities
Quick Ratio (Acid Test) = (Current Assets - Inventory) / Current Liabilities
Cash Ratio = (Cash and Marketable Securities) / Current Liabilities
Inventory Turnover = (Sales OR Cost of Goods Sold)/Inventory
Day's Sales in inventory = (Inventory x 365) / Sales or Cost of Goods Sold
Day's Sales in inventory = 365 Days / Inventory Turnover
Accounts Receivable Turnover = Credit Sales / Accounts Receivables
Average Collection Period = (Accounts Receivable x 365 Days) / Credit Sales
Average Collection Period = 365 Days / Accounts Receivable Turnover
Fixed Asset Turnover = Sales / Net Fixed Assets
Sales to Working Capital = Sales / Working Capital
Total Asset Turnover = Sales / Total Assets
Capital Intensity = Total Assets / Sales
Capital Intensity Ratio = Total Assets / Full Capacity Sales
Debt Ratio = Total Debt / Total Assets
Debt to Equity = Total Debt / Total Equity
Equity Multiplier = Total Assets / Total Equity
Equity Multiplier = Total Assets / Common Stockholder Equity
Earnings Per Share (EPS) = Net Income Available to Shareholders/Total Shares of Common Stock Outstanding
Dividends Per Share = Common Stock Dividend / Number of Common Shares Outstanding
Book Value per share = (Common stock + paid -in surplus + retained earnings) / Number of common stock shares outstanding
Market Value per share = Market price of common stock
Retained Earnings = Net Income - Dividends
Sustainable growth rate = (ROE × b) / [1 – (ROE × b)]
Where b = 1 - dividend payout ratio
EFN = Total assets – Total liabilities and equity
EFN = Increase in assets
NWC = CA – CL
Net Working Capital = Current Assets - Current Liabilities
Change in NWC = NWCend – NWCbeg
Change in NWC = NWCend – NWCbeg = (CA – CL) end – (CA – CL) beg
The average tax rate is the total tax paid divided by net income
Average Tax = Tax Liability / Taxable income
OCF = EBIT + Depreciation – Taxes
OCF with tax shield:
OCF = (Sales-Costs)(1-Tax rate)+(Tax Rate x Depreciation)
Aftertax salvage value = Market Value + (Book Value – MarketValue)tax rate
When Book = 0 Aftertax salvage value = MV(1 – tc)
Taxes on salvage value = (BV – MV)Tax Rate
Net capital spending = NFA(end) – NFA(beg) + Depreciation
Net capital spending = Increase in NFA + Depreciation
Net capital spending = (NFAend – NFAbeg) + (Depreciation + ADbeg) – ADbeg
Net capital spending = (NFAend – NFAbeg)+ ADend – ADbeg
Net capital spending = (NFAend + ADend) – (NFAbeg + ADbeg) = FAend – FAbeg
Cash flow to creditors = Interest paid – Net new borrowing
CFC = Interest – Net new LTD
Net new LTD = LTDend – LTDbeg
Cash flow to stockholders = Dividends paid – Net new equity
CFS = Dividends – Net new equity
Cash flow from assets = Cash flow to creditors + Cash flow to stockholders
Cash flow from assets = OCF – Change in NWC – Net capital spending
CFA = CFC + CFS
CFA = OCF – Net capital spending – Change in NWC
Net new equity = Common stock(end) – Common stock(beg)
Net new equity = (OE – RE) end – (OE – RE) beg
Common stock + Retained earnings = Total owners’ equity
EBIT = Net income + Current taxes + Deferred taxes + Interest
ROE = (PM)(TAT)(EM)
ROE = (Profit Margin)(TAT)(Equity Multiplier)
Equity Multiplier
EM = 1 + Debt/Equity
ROE = ROA x EM
ROE = NI / TE (Net income/ Total Equity)
PM = [(ROE)(TA)] / [(1 + D/E)(S)] (S = Sales)
PM = Net Income / Sales
ROA = NI / A
ROA = (Profit Margin x Sales) / Assets
EFN = Total assets – Total liabilities and equity
Current sales = Next year’s sales / (1 + g)
Net income = Profit margin × Sales
Addition to retained earnings = Net income(1 – dividend payout ratio)
Sustainable growth rate: (ROE x b) / (1 - ROE x b)
b = retention ratio
Long Term Debt Ratio LTD = LTD/(LTD + TE)
Total Debt (TD) = LTD + Current Liabilities
{P32 - Start from here]
Plowback Ratio = Addition to retained earnings / Net Income
FCF = [EBIT (1 − Tax rate) + Depreciation] − [ΔGross fixed assets] + ΔNet operating working capital]
FCF = [NOPAT + Deprection] − Investment in operating capital
FCF = Operating cash flow − Investment in operating capital
Discounted Payback Period = Unrecovered Cost at Start of Year / Cash Flow During Year
PV = FV /(1+r)^t
r = ( (FV/PV)^1/t )-1
Perpetuity
PV = C/r
Growing Perpetuity
PV = C/(r - g)
Continuous Compounding
PV = PVe^rt (E is euler number, use EXP in Excel)
Present Value of an Annuity (PVIFArt)
PV = C[(1-(1/(1+r)^t)/r]
Present Value of a Growing Annuity
PV = c[(1/(r-g))-1/(r-g) x ((1+g)/(1+r)^t
EAR Discrete Compounding
EAR = [1 + (APR/m)]^m -1
EAR continuous compounding
EAR = (e^q)-1
APR = m[1+EAR)^1/m - 1]
PVIF = 1/(1+R)^t
PVIF = Present Value Interest Factor
PVIFA = Present Value Interest Factor of an Annuity
Stock price - Dividends
Price = Dividend/(R - g)
Price = Dividend / R
g = ROE x b
g = Retention Ratio x Return on retained earnings
R = D1/P0 + g (1 and 0 refer to time periods)
Dividend Per Share = (Net Income x Payout Ratio) / Shares outstanding
P/E = Price / Earnings
Payback = I / C
IRR: C/I
0 = -I +C/IRR
IRR = 1/PB
Reject the offer when the discount rate is less than the IRR.
Accept the offer when the discount rate is greater than the IRR.
NPV in Excel - Remember to minus out the initial cash outlay.
EAC = Equivalent Annual Cost
EAC = Initial Investment / PVIFA
Accounting Break Even = aftertax sum of the fixed costs and depreciation charge divided
by the aftertax contribution margin (selling price minus variable cost).
Accounting Break Even
= [(Fixed Costs + Depreciation)(1-tax rate)] / [(Price - Variable Cost)(1-tax rate)]
Financial Break Even
= [EAC + Fixed Costs(1 - Taxrate) - Depreciation(tax rate)] / [(Price - Variable Costs)(1-tax rate)]
{220}
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