Professional Documents
Culture Documents
Sinking Fund
1
Sinking Fund (Annuity) = FV 3
FVIFA
r
Sinking Fund (Annuity) = FV ¥
(1 + r ) n - 1
PV = A ÏÌ - ¸
1 1
r n ˝
Ó r ¥ (1 + r ) ˛
PV = A 3 PVIFA(r, n)
Capital Recovery
PV
A=
PVIFA( r , n )
PVAD = A ÏÌ - ¸ (1 + r )
1 1
r n ˝
Ó r (1 + r ) ˛
Current Yield
[Coupon of the security (in %) ¥ Face value of the security ]
Current yield =
Market price of the security
Macaulay Duration
n t ¥ Ct n¥M
 t
+
t =1 (1 + k) (1 + k )n
Macaulay Duration =
P
Present Value of the Share (Dividend Capitalisation Method) - Zero Dividend Growth Rate
P0 = D
ke
Present Value of the Share (Dividend Capitalisation Method) - Constant Growth in Dividend
(Gordon Growth model)
D1 D2 D3
P0 = + + +
(1 + ke ) (1 + ke ) 2
(1 + ke )3
D0 (1 + g ) D0 (1 + g )2 D0 (1 + g )3
= + + +
(1 + ke ) (1 + ke )2 (1 + ke )3
D0 ¥ (1 + g ) D1
P0 = =
( ke - g ) ( ke - g )
Variance
n
Variance = 1 Â ( Rt - R )2
n t =1
Standard Deviation
1 n
Standard deviation = Â ( Rt - R )2
n t =1
Variance of Return
n
s2 = Â [ Rt - E ( R )]2 ¥ Pt
t =1
Coefficient of Variation
= Standard deviation = s
Expected return E ( R)
s
Cv =
E ( R)
Portfolio Variance
È 1 ˘
Portfolio variance = σ 2p = n ÈÍ 1 ˘˙ 3 Average variance + n(n – 1) Í 2 ˙ 3 Average Covariance
2
În ˚ În ˚
È ˘
1 È 1 ˘
= Í ˙ Average variance + Í1 - ˙ Average covariance
În˚ Î n˚
Total Risk
Total risk = Unsystematic risk + Systematic risk
Total risk = Variance caused by factors attributable to the firm + Variance attributable to general economic factors
Sharpe Ratio
Risk premium of portfolio return
Sharpe ratio =
Risk level ( σ p )
RP - R f
=
σp
Treynor Ratio
Risk premium of portfolio return
Treynor ratio =
Risk level ( βP )
RP - R f
=
βp
Beta
Cov AM
b=
Variance of Market Returns
σ A ¥ σ M ¥ CorAM
b=
Variance of Market Returns
σ A ¥ CorAM
b=
σM
Current Ratio
Current assets
Current ratio =
Current liabilities
Quick Ratio
Current assets - Inventories
Quick ratio =
Current liabilities
Cash Ratio
Cash + Amount in bank + Marketable securities
Cash ratio =
Current liabilities
Interval Measure
Current assets – Inventory
Interval measure =
Average daily operating expenses
Debt Ratio
Total debt (TD)
Debt ratio =
Net worth (NW) + Total debt (TD)
Total debt (TD)
Debt ratio =
Capital employed (CE)
Total debt (TD)
Debt ratio =
Net assets (NA)
Debt-Equity Ratio
Total debt (TD)
Debt-equity ratio =
Net worth (NW)
Debt Ratio
Total debt + Value of lease
Debt ratio =
Total debt + Value of lease + Net worth
Debt-Equity Ratio
Total debt + Value of lease
Debt-equity ratio =
Net worth
Return on Equity
Profit after tax PAT
ROE = =
Net worth NW
Dividend Yield
Dividend per share DPS
Dividend yield = =
Market value per share MV
Earnings Yield
Earnings per share EPS
Earnings yield = =
Market value per share MV
Earning Power
Earnings after tax Sales
Earning Power = ¥
Sales Total Assets
Earnings after tax
=
Total assets
PAT ¥ RE ¥ D + E
S PAT E
=
NA Ê PAT D + Eˆ
-Á ¥ RE ¥ ˜
S Ë S PAT E ¯
= b ÍÈr + ( r - i ) ¥ ˙˘ ¥ (1 - T )
D
Î E˚
XNPV
n Pi
XNPV = Â
i =1
(1 + rate )
( di ¥ d1
365 )
IRR (by Trial and Error)
C1 C2 C3 C4 Cn
C0 = + + + +º+
1 2 3 4
(1 + r ) (1 + r ) (1 + r ) (1 + r ) (1 + r ) n
n Ct
C0 = Â
t = 1 (1 + r )t
Profitability Index
Present value of all future cash inflows
PI =
Initial cash outlay
n ÏÔ ¸Ô
Ct
ÂÌ ˝
Ô (1 + r )t ˛Ô
t =1 Ó
PI =
C0
Payback Period
Initial investment or Initial cash outflow
=
Annual constant cash inflow
Relation between ‘before tax cost of debt’ and ‘after tax cost of debt’ for redeemable debt
n INTt ¥ (1 - T ) Pn
P0 = Â t
+
t =1 (1 + kd ) (1 + kd ) n
Profit
Profit = Revenue – Expenditure – Depreciation
P=R–E–D
Cash Flow
Cash Flow =Revenue – Expenditure – Capital Expenditure
CF = R – E – CAPEX
Cash Flow = Profit + Depreciation – Capital Expenditure
CF = P + D – CAPEX
Present Value of all Future Cash Flows beyond nth year at the end of nth year
NCFn +1
PVn =
(k - g)
Coefficient of variation
Standard deviation of probability distribution
=
Expected net cash flow (ENCF)
σ
=
( ENCF )
Worth of a Project
Worth of a project = NPV + Real options’ value
Call Premium (Price of call option) - Black Scholes Option Pricing Model
Co = So N (d1) – Xe–rf t N (d2)
Debt Ratio
D
L1 = =D
(D + E) V
Return on Equity
(EBIT – I ) ¥ (1 – T )
ROE =
E
Earnings Per Share (Preference Share is Present in Firm’s Capital Structure)
(EBIT – I ) ¥ (1– T ) – Preference Dividence(Dp)
EPS =
N
Return on Equity (Preference Share is Present in Firm’s Capital Structure)
(EBIT – I ) ¥ (1– T ) – Preference Dividend (Dp)
ROE =
E
Return on Equity
{
ROE = r ¥ (1 – T ) + (r – i ) ¥ D
E } ¥ (1 – T)
Value of Equity
Net Income NI
E= =
Cost of equity ke
Value of Debt
Interest Interest
D= =
Cost of debt kd
Value of Firm
V=E+D
= NOI
V
Sustainable Growth
Sustainable growth = ROE (1 – payout ratio)
Return on Equity
ROE = È ROCE + (ROCE – kd ) D ˘ (1 – T)
ÍÎ E ˙˚
Asset Beta
n
ba = Â biwi
i=1
ba = be ¥ Ê E ˆ + βd ¥ Ê D ˆ
ËV¯ ËV¯
Equity Beta
Ê Dˆ
be = ba + (ba – bd) ¥ Ë ¯
E
Cost of Debt
kd = rf + rp ¥ bd
Cost of Equity
ke = rf + rp ¥ be
ba = Èβe E + βd D ˘ È ˘
1
ÍÎ V V ˙˚ Í Ê D ˆ ˙
Í1 – T Ë ¯ ˙
Î V ˚
be = βa È1 + D (1 – T )˘ – βd D
ÍÎ E ˙˚ E
WACC = ke E + kd(1 – T) D
V V
Miles-Ezzell formula
D È 1 + ka ˘
k* = ka – T kd Í ˙
V Î 1 + kd ˚
WACC formula
WACC = ka – T kd D
V
Value of a Firm
N FCF (1 + gH )t FCF (1 + gH) N È 1 ˘
V= Â +
Í (1 + k ) H ˙
t =1 (1 + k0 )t k0 - g N Î 0 ˚
È Ï1 + g ¸ N ˘ FCF(1 + g ) N (1 + g )
V= FCF Í1 – ÔÌ H Ô
˝ ˙+
H N
¥
1
k0 - g H ÍÎ ÓÔ 1 + k0 ˛Ô ˚˙ k0 – g N (1 + k0 ) H
Current Yield
Current annual return
Current yield =
Current market price
Conversion Ratio
Issue price of convertible debenture
=
Conversion price
Conversion Value
CVn
CVp =
(1 + ke )n
Warrant Premium
(MVW - TVW) ¥ 100
WP =
TVW
Current Market Value of the Share after the Issue of Warrant Issued at a Cost
(Current share price ¥ Number of existing shares) + Warrant issue cost
=
Number of existing shares
Baumol’s Model
2 tT
C* =
k
Miller-Orr Model
1/3
Ê 3
¥ Transaction cost ¥ Daily Cash flow variance ˆ
4
G = 3¥Á ˜
Ë Interest per day in percentage ¯
Reorder Level
Reorder Level = Maximum Consumption 3 Maximum delivery time
Rate of Return
Rate of return (ROR) = P
W
Annual Interest Rate or Implicit Interest Rate or Cost of not availing the discount
d 365
= ¥
100 - d c - p
Net Earnings
Net Earnings = Operating profit – Interest – Tax – Dividend on preference shares
Payout Ratio
Amount paid out as dividend
Payout ratio =
Net earnings of the firm
Retention Ratio
Amount held back as retained earnings
Retention ratio =
Net earnings of the firm
Put-Call Parity
S0 + P0 = C0 + X e–rf t
Option Delta
Difference in option values
Option delta (D) =
Difference in share price
ÊS ˆ È σ2 ˘
ln Á 0 ˜ + Írf + t
Ë X¯ Î 2 ˙˚
d1 =
σ t
d2 = d1 – σ t
Bid-Ask Spread
Ask price – Bid price
Spread =
Ask price
Value Creation
VC2012 = MVA2 – MVA1
• Do (1 + g )t • EPSo (1 - b ) (1 + g )t
M= Â = Â
t =1 (1 + ke )t t =1 (1 + ke )t
D1 EPS1 (1 - b )
M= =
ke - g ke - g
Market-to-Book Value
M = ROE - g
B ke - g
È Ê 1 + g ˆ n ˘ È 1 + g ˘n
M = Ê ROE - g ˆ Í1 - Á ˙+Í
B ÁË ke - g ˜¯ ˙
ÍÎ Ë 1 + ke ˜¯ ˙˚ Î 1 + ke ˚
Economic Return
Economic return = Return on equity (ROE) – Cost of equity (COE)