!

"##$%& ())$&)
▪ nCurrent Ratio =!"##$%& *+(,+*+&+$) of sales
!"##$%& ())$&)-+%.$%&/#0 External Financing Needed
▪ Quick Ratio = !"##$%& *+(,+*+&+$)
● (Assets/Sales) x (Change in sales)
▫ Used because inventory is not liquid enough – (Spontaneous Liabilities/sales) x
!()1
▪ Cash Ratio = !"##$%& *+(,+*+&+$) (change in sales) – PM x
▪ Total Debt Ratio =
&/&(* ())$&)-&/&(* $2"+&0
(Projected Sales) x (1-d)
&/&(* ())$&)
3$,& ● Change in sales in dollars
▪ Debt-Equity Ratio = $2"+&0 ● Spontaneous liabilities,” we mean
())$&)
▪ Equity Multiplier = $2"+&0 = 1 + debt-equity ratio liabilities that naturally move up
4567 and down with sales
▪ Timed Interest Earned Ratio = +%&$#$)& ● PM and d are the profit margin and
▫ Measures how well a company has its interest dividend payout ratios
obligations covered
456789 %$& +%!/>$
▪ Cash Coverage = ▪ Return On Assets = ())$&)
+%&$#$)&
▫ Basic measure of the firm’s ability to generate ▪ Return On Equity =
%$& +%!/>$

cash from operations, and it is frequently used as $2"+&0
%$& +%!/>$
a measure of cash flow available to meet financial ▪ EPS = )1(#$) /"&)&(%3+%?
obligations @#+!$ @$# )1(#$
:;<= ▪ PE ratio = 4A=

▪ Inventory Turnover = +%.$%&/#0 >(#B$& .(*"$
365
▪ Market to book ratio = ,//B .(*"$

▪ Days’ Sale in the inventory = +%.$%&/#0 &"#%/.$# &/&(* $2"+&0
▪ Book value = )1(#$) /"&)(%3+%?

)(*$)
▪ Receivables turnover = (!!/"%&) #$!$+.(,*$ ▪ Market Capitalization = Price per share ×
▫ Measures how fast sales are collected Shares outstanding
▪ Total Asset Turnover = Sales divided by total ▪ Enterprise Value = Market Cap + (Market Value
assets of interest bearing debt) – Cash
%$& +%!/>$
▪ Profit Margin = )(*$) ▫ The purpose of the EV measure is to better
456789 estimate how much it would take to buy all of the
▪ EBITDA Margin = )(*$)
outstanding stock of a firm and also to pay off the
▫ Looks more directly at operating cash flows debt.
▫ Does not include the effect of capital structure or ▪ EV Multiples =
taxes C(#B$& :(@D(C(#B$& F(*"$ /G 6%&$#$)& 5$(#+%? 8$,&)-:()1

Percentage of sales approach 456879

● A financial planning protocol that

specifies balance sheet and income Cash Flow from Operations
● Additions
statement items as a proportion of
o Depreciation & Ammortization
sales.
o Decrease in non-cash CA (ie inventory)
Dividend Payout Ratio
o Increase in payables & related short term
● Cash dividends divided by net
o Losses or asset sales
income o Increase in litigation reserve or product
ratio of the addition to retained earnings to warranties
net income AKA retention ratio or plowback ● Subtractions
ratio ▪ Increase in non-cash CA
● Addition to retained earnings ▪ Ammortization of premium bond
divided by Net income ▪ Decrease in payables and related short-
Capital Intensity Ratio term liabilities
● Ratio of total assets to sales ▪ Gains on asset sales (avoid double
● Assets needed to generate a dollar counting
Cash Flow from Investing

● Use direct method for calculation

● ADD Gains on asset sales
● Subtract CapX (use Net PPE)
o CapX = 𝑃𝑃𝐸1 − 𝑃𝑃𝐸0 + 𝐷𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛
Cash Flow from Financing

:()1 G#/> ;@$#(&+/%)
Cash Conversion Ratio =
I$& 6%!/>$
● Big predictor of bad performance
● Average is 1.7x
Channel Stuffing – Buying stuff with receivables
but not receiving the cash for it, just increases
revenue

Time Value of Money
JF
● PV = (1D#)!
● Capital Markets – When two people have
different investment strategies, create a rate
where you can borrow or lend which
connects the two utilities. Borrow difference
between intersection of PPF and line and the
intersection between line and utility curve.
:J 1
Annuity = PV = # (1 − (1D#)! )
:J
Perpetuity = PV = #
:J (1D?)!
Growth Annuity = PV = (#-?) (1 − (1D#)! )
● g can be greater than r
:J
Growth Perpetuity = PV = #-?
#
APR = 1 + 𝑟 = (1 + )%
%