COGS = Fixed Costs + Variable Costs** NWC= CA-LC, NI = Div + retained earnings B=plowback retention ratio= addition to retained

ntion ratio= addition to retained earnings/ NI = 1-Div payout ratio

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

EBIT-I=EBT x Tax rate=EB**NI=EBT-tax=NI**EBT=NI/(1-tax rate) b=retained earnings/NI** b=(NI-Div)/NI

# 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 =

margin) (= Total A/Total E x Rev/Total A x OI/Rev x Pre-tax income/OI x (1-taxrate)) 9.67%

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

− 37) × 100 = −222.

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

the year, my investment will be $1,480.

CH 16 & 17: Source of cash: Cash = Long-term debt + Equity + Current liabilities −
CH11: E(r)= p1 x r1 + p2 x r2 …. ** Var = [p1 x (r1 – E(r)2] +[p2 x (r2 – E(r)2] + … **
Current assets other than cash − Fixed assets.
Vol = √Var (square)
*Increasing long-term debt (borrowing over the long term). *Increasing equity (selling
CAPM: E(ri)= rf + Bi[E(rm) - rf] ** The Sharpe = S = E(r) - rf / ó= Risk Premium / Vol
some stock). *Increasing current liabilities (getting a 90-day loan). *Decreasing current
(T-bill rate = r) ** SML : security market line = ∂ = E(r) - (rf + B[E(rM) - rf]) **
assets other than cash (selling some inventory for cash). *Decreasing fixed assets
Multifactor model : E(ri) = rf + B1RP1 + B2RP2 * rf : The risk-free rate of return.
(selling some property).
CH12: The after-tax cost of debt is rd(1 − t) = 6.2% × (1 − 40%) = 3.72% ** company’s
Uses of cash: same equation as above opposite +/-
cost of preferred equity : r preferred = Dpreferred /P** CAMP Alpha’s cost of equity
*Receivables turnover = Total revenue/ Average receivables : How many times
capital
accounts receivable are created and collected during the period.
: re =rf +βe ×(rM −rf) ** DGM: re = D1/P0+ g = D0(1 + g)/P0 + g ** re = rd + risk
*Payables turnover = Cost of goods sold/ Average payables: How many times accounts
premium
payable are created and collected during the period. *Inventory turnover = Cost of goods
WACC = wdrd(1 − t) + wprp + were ** wd + wp + we = 1
sold/ Average inventory : How many times inventory is created and sold during the
WACC = 10 ×0.09 / 10+40 ×(1−0.30)+0+ 40/10+40 ×0.15 = 0.0126 + 0.120 = 0.1326
period.
CH 13
*Number of days of inventory = 365/ Inventory turnover: Average time it takes to create

and sell inventory. *Number of days of receivables = 365/Receivables turnover

:Average time it takes to collect on accounts receivable. *Number of days of payables =

365 /Accounts payables turnover : Average time it takes to pay its suppliers.*Operating

cycle = Number of days of inventory + Number of days of receivables. *Net operating

cycle or Cash conversion cycle = Number of days of inventory + Number of days of

receivables − Number of days of payables.

# 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

buy one U.S. dollar (currency per dollar); “per US$".