FORMULAS

CHAPTER 2 D. Debt utilization ratios

Earning available to common shareholders Total debt
1. Earnings per share (e.p.s.) = ________
​     
     ​  (2–1) 11. Debt to total assets = ___
​   ​  
  (3–11)
Number of shares outstanding Total assets
Dividend per share Market share price Income before interest and taxes
2. Payout ratio = ____
   ​ 
​    (2–2) 3. P/E ratio = ____
​    ​  (2–3) 12. Times interest earned = ______
   
​   ​ 
   (3–12)
Earnings per share Earnings per share Interest
Dividends per share Income before fixed charges and taxes
4. Dividend yield = ____
​     ​ 
   (2–4) 13. Fixed charge coverage = _______
 ​ 
​     
    (3–13)
Market share price Fixed charges

Market value MV Market value per share

5. ___ = ​ _ ​ = ​ _____
​    ​     ​ 
   (2–5) CHAPTER 4
Book value BV Book value per share
A L
CHAPTER 3 1. RNF = _
​    ​ (∆S) - _
​    ​ (∆S) - PS2(1 - D) (4–1)
S1 S1

A. Profitability ratios
_ ∆S ____ ( 
P(1 - D)​ __
1 + DT 
​  E ​    ​ )
( 
2. SGR = ​   ​  =   
​     ​ (4–2)
)
Net income Gross profit S1 +
1. Profit margin = ___
​   (3–1a)  Gross profit margin = ___
 ​   ​   ​  
 (3–1b) A 1 D  
​ _  ​ - P(1 - D)​ ​ __
T
Sales Sales  ​    ​
S1 E
2. Return on assets (investment) (ROA) =
Net income Net income Sales CHAPTER 5
a. ___
​   ​  
  b. ___
​  × ​ ___
 ​ 
     ​  (3–2)
Total assets Sales Total assets FC
1. CM = P - VC  (5–1) 2. BE = _
​    ​   (5–2)
3. Return on equity (ROE) = CM
Net income Total assets
a. ____
   ​
​    b. Equity multiplier = ___
  
​   ​
  3. DOL = _
​ 
CM
  ​   (5–4) 4. DFL = _
EBIT
​   ​  
  (5–6)
Shareholders’ equity Equity EBIT EBT
c. ROA × Equity multiplier  (3–3) S ×I -S ×I
5. EBIT* = ___
B
​   A A B
 ​  
  (5–7) 6. DCL = DOL × DFL  (5–9)
B. Asset utilization ratios SB - SA
Sales (credit) CM Q(P - VC) S - TVC
4. Receivables turnover = ___
  
​   ​  (3–4a) 7. DCL = _
​    ​   (5–10) 8. DOL = ___
   ​ = ___
​    ​      ​
Receivables EBT Q(P - VC) - FC S - TVC - FC
Accounts receivable EBIT Q(P - VC) S - TVC
Average collection period = _____
    ​  (3–4b)
​  Average
   daily credit sales 9. DFL = __
​    ​   10. DCL = ____
   ​ = ____
​    ​   
  
EBIT - I Q(P - VC) - FC - I S - TVC - FC - I
Cost of goods sold Sales
5. Inventory turnover = ____
  
​   ​  or ​ __
     ​  (3–5a)  ​C HAPTER 7
Inventory Inventory
Inventory
(  )
365
Inventory holding period = ____ 100 - P 365 100 - P _
1. __  × _ 2. ​​ 1 + __
​   ​  
​   
   ​ 
Average daily COGS (3–5b) ​   ​
   = r (7–1a)
​   ​
  ​   ​ d ​- 1 = r (7–1b)
 ​  
P d P
_____
Cost of goods sold
6. Accounts payable turnover = ____
​     ​ 
   Accounts payable (3–6a) 3. EOQ = ​ _√  C
2SO
​   ​ ​ (7–2)
    4. TC = _
SO
Q
CQ
​   ​  + ​ _ ​    (7–3)
2
Accounts payable
Accounts payables period = ______
​    
    ​  (3–6b)
Average daily purchases (COGS) CHAPTER 8
Sales d% 365
7. Capital asset turnover = ___    ​ 
​     (3–7) 1. KDIS = ___
​  × ___
   ​  ​    
   ​  (8–1)
Capital assets 100% - d % f (date) - d (date)
Sales
8. Total asset turnover = ___
​     ​  (3–8) 2. Amount to be borrowed = ___
  
​   ​
 
Amount needed
Total assets (1 - c)
I I 
C. Liquidity ratios ​  365
3. RANNUAL= ​  —   ​ × _  ​
  
  (8–2) 4. RDIS =  ​ _
P-I ​  365
   ​ × _  ​
  
  (8–3)
P d d
Current assets
9. Current ratio = ___
​     ​ 
   (3–9) I I 365
Current liabilities 5. RCOMP = __
​     ​   (8–4) 6. RCOMP = __
​  ×_
   ​  ​   ​  
  (8–5)
(1 - c) (P - B) d
Current assets - Inventory
10. Quick ratio = _____
​       
Current liabilities ​  (3–10) 2 × Annual number of payments × I 
7. RINSTAL = _______
    ​ (8–6)
​     
(Total number of payments + 1) × P
CHAPTER 9 D1 

(  )
_
​  P   ​ + g 
1. FV = PV(1 + i )n (9–1) D1  D1  P0 
5. Ke = _ 6. Kn =  ​ __   or Kn = ​ _
​    ​ + g  ​  ​ _ ​   
0
​  P   ​ + g (11–3) 1-F  ​
  P0 Pn (11–4)
2. (1 + i )n - 1 = Effective interest rate  (9–2) 0

[ (1 +1 i ) ] (  )
Kj  P0 
3. PV = FV​ __
​    n ​  ​= FV(1 + i )-n (9–3) 7. Kj = Rf + βj (Rm - Rf ) (11–5) 8. Kjn = _  or Kjn = Kj ​ _
​     ​  ​   ​   ​   (11–6)
1-F Pn

FV = A​[ ​  ]​ (9–4a) (  ) (  ) (  )
n
(1 + i ) - 1
__  Vd  Vp  Ve 
4. A i ​   9. Ka = ​ _
​   ​  ​ Kd + ​ _
​   ​  ​ Kp + ​ _
​   ​  ​ Ke (11–7)
Va Va Va

FV = A  ​[ ​    i ​  ]​ (9–4b)

n+1
(1 + i ) - (1 + i )
___  Retained earnings
5. A BGN 10. X = ______
    ​ 
​     (11–8)
% of equity in the capital structure

[  ]
1
1 - __
[ 1 - (1 + i )  ]
​      ​ Amount of lower-cost debt
(1 + i )n  -n
11. Z = ______
    ​ 
​     (11–9)
6. PVA = A​ __
​   ​= A​ ___
i ​   ​  i ​  
​ (9–5a)
  % of debt in the capital structure

[  ]
1
(1 + i ) - __ CHAPTER 12
[ 
​     ​  
____
7. PVA = ABGN ​ ​   
(1 + i )n-1
 ​  
(1 + i ) - (1 + i )-n + 1 
​= ABGN ​ ____
​     ​   ​ (9–5b) ] [  ](  )
i i dTc  1 + 0.5r
1. PV of CCA tax shield = [Cpv - Spv ]​ _
​    ​  ​​ __
​   ​  
​ (12–1)
 

[ (1 + ii) - 1 ]
r+d 1+r
8. A = FVA ​ __
​   
n  ​  
​  (9–6a)
CHAPTER 13
= FV ​ ​ 
___________

[ (1 + i )  i- (1 + i ) ​  ]​  (9–6b)

__ __
9. A ___
   ​  = ƩDP (13–1)
1. D​ 2. σ = √   - D​
​ Ʃ(D ​  )2P ​ 
 (13–2)

A = PV  ​  ​ 
BGN A n+1
σ __ _

 1  ​  ​  = PV  ​  ​ 
[ (1 + i ) ]
3. V = —
​  __  ​  (13–3) ​  p = Ʃxi D​
4. D​ ​  i (13–4)
10.
1
A
-
__ 
__ 
​ 
i
   ​ [ 1 - (1 + i ) ]
A
___  i
   ​  ​   (9–7a)
-n
​D​ 
__ _ CovAB

= PV  ​  ​ 
n
5. CovAB = ƩP(D - D​
​  i )(F - F​
​  i ) (13–5) 6. ρAB = ————
​  σ σ  ​   (13–6)
 ​  ​  = PV  ​  ​ 
[ (1 + i ) ]
A B

11. A BGN A
(1
___
  
+ __ 
i ) -
i
​ 
 1
   ​
n-1
A [ ____
   -n+1
i
 
(1 + i ) - (1 + i ) ]
 ​  ​  (9–7b)
7. σAB = √
_________________________
  2Aσ2A + x2Bσ2B + 2CovAB xAxB ​ 
​ x    (13–7)
___________________________
A PMT √   2Aσ2A + x2Bσ2B + 2ρAB σAσBxAxB ​  (13–8)
​   ​  = ​ _
12. PV = — i ​
 
  (9–9)
  8. σAB = ​ x   
i
A1 
13. PV = _
​  i -  g ​ 
 (9–10) CHAPTER 17
(​ ​    Number of
outstanding )
Total number of  ​  ​

(  ) [  (  1 + i ) ]
1 1 + g  n   
directors desired ​ ×   
​  shares
  
14. PVn = A1 ​ _
​  i - g ​  ​  ​ 1 - ​​ ​ _ ​   1. Shares required = ________
( 
 ​ ​ ​  ​   (9–11) ​     
     ​ + 1  (17–1)
​ ​    Total number of
   ​ + 1  ​
directors to be elected )
CHAPTER 10
n
It  Pn  Dp  Number of directors
   ​ = ________
2. ​        
​   ​  
(​ ​ Shares - 1 )​ × (​ ​   
owned ​     ​ + 1 )​
Total number of
directors to be elected
(17–2)
∑ 
1. Pb = ​     __
​​ ​    t ​​ 
(1 + Y )
+ __
​     ​ 
(1 + Y )n
 (10–1) 2. Pp = _
​  K  ​    (10–3)
p
that can be elected     
(Total number of shares outstanding)
t=1
Po - S Pe - S
3. R = __
​   ​  
  (17–3) 4. R = __
​   ​
 (17–4)
 
 
Dp  D1  N+1 N
3. Kp = _
​  P  ​  (10–4) 4. P0 = __
​  K - g ​ 
 (10–8)
p e
CHAPTER 19
+ P  ​​  __
n

( ​ 1 +1 K  ​  )​ ​ ​ (10B–1)

D1  D 
∑__
​​ ​  
n
5. Ke = _
t
​    ​ + g  (10–9) (11-3) (11–5)
P0 6. P0 = ​       ​​  t
t=1
(1 + K ) e
n
e 1. Face value = Conversion price × Conversion ratio  (19–1)
D4 
7. P3 = __
​  K - g ​ 
 (10B–2) Adjusted aftertax earnings
2. Diluted earnings per share = _____
   
​      ​ 
e Shares  ​ 
​  outstanding ​  Shares
+    from (19–2)
conversion ​ 
CHAPTER 11
3. I = (M - E) × N (19–3) 4. S = W - I (19–4)
Y(1 - T )
1. Kd = Y(1 - T) (11–1a) 2. Kd = __
​   ​
 
  (11–1b)
 
1-F CHAPTER 21
D /P   Dp 
3. Kp = __
​ 
p p
 ​ 
 (11–2a) 4. Kp = __
​  P - F ​ 
 (11–2b) Forward - Spot 12
 
1-F 1. Forward premium (discount) = ___
  
​  × _____
 ​  ​     ​ 
   (21–1)
p Spot Contract length (months)