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Cheat Sheet
Cheat Sheet
Earnings before interest and taxes (EBIT) = Operating Income (OI). Sustainable growth rate= ROE x b/1-ROE x b *** ROE = return on E=NI/total E ***
CFFA= CF/CR+CF/SH , CF/CR=Int paid-Net new borrowing (long term debt) The maximum
CF/SH= Div paid-Net new equity (common stock paid)** Net NWC = End NWC – Beg NWC growth rate achievable without using any external equity financing, while maintaining a
CFFA= OCF-NCS- Net NWC, OCF= EBIT +D-Tax, NCS=End FA-Beg FA+D constant debt-equity ratio. SGR=(ROE x b)/(1-ROE x b)**b=( 1- Div payout ratio)** or
# Quick ratio = Cash+Short-term marketable investments+Receivables / Current liabilities CH 5) Growing annuity PV =C/ r -g [1− (1+g/1+r)T] ** PV = C/r [1- (1/1+r)T] g=0
# Cash ratio= Cash+Short-term marketable investments / Current liabilities *** PV = C/r ** loan amortization PV= C/r [1- (1/1+r)T]
#Total debt = Debt due in one year + Long-term debt + Deferred income taxes + Other noncurrent Single period: r = (P1+D – P0)/P0 = P1+D/P0 -1**Multi period: Arithmetic Avg( Avg r)
liabilities *** Current ratio = Current assets / Current liabilities Multi period: Geometric Avg: (1+ rG)4 = (1+0.1)x(1+0.25)x(1-0.2)x(1+0.25) **
# Total debt ratio = Debt-to-assets ratio = Total debt /Total assets r G= (1+0.1)x(1+0.25)x(1-0.2)x(1+0.25)1/4 -1= 8.29%
# Total debt Debt-to-equity ratio = Total debt / Total equity APR = r x n ** 1 +EAR = (1+r)n = (1+APR/n)n – 1 ** APR = ((1+ EAR)1/n – 1) x n
# Financial leverage = Equity Multiplier = Total assets/ Total equity ** = TA/TE=(TE+TD)/TE=1+TD/TE r = $10, 000 / $9, 900 − 1 = 1.0101%.
# Long-term debt-to-assets ratio = Long-term debt / Total assets APR = r × n = 1.0101% × 12 = 12.12%.EAR = (1+r)n −1 = (1+1.0101%)12 −1 =
# Times interest earned ratio = Interest coverage ratio = Earnings before interest and taxes (EBIT)/ Interest 1.1282−1 = 12.82%.
payments # Cash coverage ratio = EBIT + Depreciation / Interest payments CH 6: Bond Value = C x [1- (1/(1+r)t]/r + F/(1+ r)t ** PV of coupons = C x [1-1/(1+r)t/r
I# nventoryturnover = Costofgoodssold / (Average) inventory **CA=CL x current ratio; Inv=CA-(CL x ** PV of face amount = F/(1+ r)t
Quick ratio) Fisher effect: 1 + R = (1 + r) × (1 + i)R = nominal rate (Quoted rate) r = real ratei =
# Receivables turnover = Total revenue /(Average) Accounts receivable expected inflation rate Approximation: R = r + i ** R = 1.1 × 1.08 − 1 = 0.188 = 18.8%
# Total asset turnover = Total revenue /(Average) total assets Approximation: R = 10% + 8% = 18%
# Capital Intensity = (Average) total assets / Total revenue CH 7: V: Value of Stock.Dt: Dividend at time t.k: Required rate of return. Sometimes,
# Number of days of inventory = 365/ Inventory turnover = Inventory/Cost of goods sold/365 we also use r.g: Constant perpetual growth rate.ROE: Return on Equity for the firm.b:
#Number of days of receivables =365 / Receivables turnover= Accounts receivable /Revenue/365 plowback or retention rate = 1 dividend payout rate
#Number of days of payables = Accounts payable/ Purchases*/365 One period: V0 = D1 + P1 /1+k ** DIVIDEND DISCOUNT MODELS (DDM)
#Purchases= COGS+Ending inventory−Beginning inventory Two periods: V0= D1 /1 + k + D2+P2 /(1 + k)2
#Operating cycle = Number of days of inventory + Number of days of receivables Three periods: V0=D1/1 + k + D2/(1 + k)2 + D3+P3 /(1 + k)3
#Net operating cycle = Number of days of inventory + Number of days of receivables − Number of days of Four periods: V0=D1/1 + k +D2 /(1 + k)2 + D3/(1 + k)3 + D4+P4/ (1 + k)4
payables ***Payables turnover = COGS / Accounts payable Constant Growth Model CGM: V0 = D0(1+g)/ k - g = D1/ k- g ** * g = k – (D1/V0)
Operating profit margin = Operating income /Total revenue **Gordon growth model
#Profit margin = Net profit margin = Net income /Total revenue **NI=total assets x ROA, PM=NI/sales Estimating dividend growth rates: g = ROE x b ** EX: Calculate the price of a firm with
# Pretax profit margin = Earnings before taxes /Total revenue**# Operating return on assets = Operating a plowback ratio of 0.60 if its ROE is 20%. Current earnings, E1 will be $5 per share,
income /Total assets **# Gross profit margin = Gross profit /Total revenue and k = 12.5%. Assume CGM. * D1 =E1x (1 - b)=5⇥(1 0.60)=2 *g = ROE ⇥ b = 0.20 ⇥
# Return on assets ROA= Net income /Total assets**# Return on equity ROE= Net income / Total equity 0.60 = 0.12 *P0= D1/ k- g = 2 /0.125 -0.12 =400.
DUPONT ANALYSIS (The financial ratio measured as the price per share of stock divided by earnings per P/E ratio with constant growth: P0= D1/ k- g = E1(1 - b) / k- b x ROE
share ** (Return on equity =Net income /Total equity ) (= Total assets/Total equity × Return on assets ) P0/ E1 = 1- b/ k - b x ROE *b = retention ratio.ROE = Return on Equity.
(=Financial leverage × Return on assets ), (= Total assets/ Total equity × Net income/ Total assets) Finding K with the Gordon growth model: k = D1/P0 + g = D0 (1+ g) /p0 + g
(=Total A/Total E x Rev/Total A x NI/Rev) (= Financial leverage × Return assets turnover x Net profit K = 2.24 x (1 + 0.055) / 56.60 + 0.055 = 2.363 / 56.60 + 0.055 = 0.0417 + 0.055 =
Market Value Measures: CH 8: NPV = −10, 000 + 2, 000/1.10 + 2, 000/1.102 + 4, 000/1.103 + 4, 000/1.104 + 5,
b= Retention ratio = (Earnings − Cash dividends)/Net income. ***Dividend payout ratio = 1 − b = Cash 000/1.105
dividends/Net income *** Price–sales ratio = Price per share / Sales per share CH 9: Outlay = FCInv + NWCInv − (1 − T)Sal0 − TB0
Price–earning (PE) ratio = Price per share /Earnings per share (EPS) FCInv = Investment in new fixed capitalNWCInv = Investment in net working capital
Market-to-book ratio = Market value per share / Book value per share Sal0 = Cash proceeds (salvage value) from sale of old fixed capital. T = Tax rateB0 =
EBITDA ratio = Enterprise value / EBITDA*** EBITDA = EBIT + Depreciation & Amortization Book value of old fixed capital.
Enterprise value = Total market value of the stock + Book value of all liabilities − Cash After-tax operating cash flow = (S−C−D)(1−T)+D = (S−C)(1−T)+TD. After-tax
Internal growth rate = ROA x b/ 1-ROA x b *** ROA=Return on assets = NI/total assets operating cash flow=Operating cash flow (OCF) = Sales – Exp (sales x O Exp rate) –
The maximum growth rate achievable without external financing of any kind. Dep (Initial Inv x Macrs) = OI before tax – Taxes = OI after Taxes + Dep = OCF
OCF = (S − C − D)(1 − T) + D = (S − C)(1 − T) + TD. ** Salvage tax value = salvage
amount x tax rate = salvage tax value** Salvage – salvage tax = salvage after tax +
working capital= salvage value * (MM) Proposition I (No tax):The market value of a company is independent of its
Total after-tax cash flow=Cash Flow from Assets=Free Cash Flow (FCF). capital structure. * (MM) Proposition II (No tax):The cost of equity is a linear function
TERMINAL YEAR AFTER-TAX NONOPERATING CASH FLOW: TNOCF = SalT(1 of the company’s capital structure (debt/equity ratio).
− T) + NWCInv + TBTSalT = Cash proceeds (salvage value) from sale of fixed capital RA = WACC = E /V x RE + D /V x RD
on termination date.NWCInv = Investment in working capital.BT = Book value of fixed RE = RA + (RA- RD) x D /E
capital on termination date. MM (II): The total systematic risk of the firm’s equity thus has two parts: business risk
CH 10: At the beginning of the year, the stock is selling for $37 per share. If you buy and financial risk. The first part (the business risk) depends on the firm’s assets and
100 shares, you have a total outlay of $3,700. Suppose, over the year, the stock pays a operations and is not affected by capital structure. Given the firm’s business risk (and its
dividend of $1.85 per share. **Total dollar return=Divident Income+Capital gain (or cost of debt), the second part (the financial risk) is completely determined by financial
loss). Dividend income=1.85×100=185. Dividend **yield= D1/P0 = 1.85/37 = 0.05 = policy. The firm’s cost of equity rises when it increases its use of financial leverage
5%.If the value of the stock rises to $40.33 per share by the end of the year, **Capital because the financial risk of the equity increases while the business risk remains the
gain= (40.33 − 37) × 100 = 333.Capital gain yield= (P1 − P0)/P0 = 3.33/37 = 9%. Total same.
dollar return= 185 + 333 = 518. Total percentage return= 5% + 9% = 14%. **If the Present value of tax shield on debt = Tc x D ( increase by tD)
value of the stock drops to $34.78 per share by the end of the year, Capital loss= (34.78
EX: Dividend yield= D1/P0 = 2/25 = 0.08 = 8%.Capital gain yield= (P1 − P0)/P0 = (35
− 25)/25 = 10/25 = 40%. **Total percentage return= 8% + 40% = 48%. At the end of
365 /Accounts payables turnover : Average time it takes to pay its suppliers.*Operating
# Eurodollars are time deposits denominated in U.S. dollars at banks outside the United
States, and thus are not under the jurisdiction of the Federal Reserve.
*Direct Quotation = price of foreign currency expressed in U.S. dollars. (dollars per
currency); “in US$". * Indirect quotation = the amount of a foreign currency required to