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CHAPTER 2: FINANCIAL STATEMENTS AND CASH FLOW  ICF/NCS = Ending net FA – Beginning net FA + Dep
 CF to creditors – CF(B):
1. THE BALANCE SHEET:
 CF(B) = Interest expenses + retirement of debt – proceeds from new debt
 Assets = Liabilities + Stockholders’ equity
 CF(B) = Interest expenses – (Ending LT debt – beginning LT debt)
2. THE INCOME STATEMENT:
 CF to stockholders – CF(S):
 Revenue = Expenses + Income
 CF(S) = Dividends + repurchase of stock – proceeds from new stock issues
 NI = Dividends + Addition
 CF(S) = Dividends – [(ending common stock + APIC) – (beginning common stock
 EBIT = Sales – Cost – Dep
+APIC)]
¿
 EPS = Total shares outstanding
CHAPTER 3: FINANCIAL STATEMENTS ANALYSIS AND FINANCIAL MODELS
Dividends
 DPS =
Total shares outstanding I. FINANCIAL STATEMENTS ANALYSIS (Standardized statements)
3. TAXES: II. RATIO ANALYSIS:
thetax bill 1. SHORT-TERM SOLVENCY OR LIQUIDITY MEASURES:
 Average =
taxable income
CA
4. NET WORKING CAPITAL:  Current ratio = CL
 NWC = CA – CL CA−Inventory Inventory
 Quick ratio = CL
= Current ratio -
CL
 ∆NWC = NWCt – NWCt+1
Cash
5. FINANCIAL CASH FLOW:  Cash ratio = CL
 An official accounting statement ~ The statement of cash flows: 2. LONG-TERM SOLVENCY MEASURES:
 Change in cash = CFO + CFI + CFF Total assets−total equity 1
 Total debt ratio = Total assets
=1-
Equity multiplier
 CFO = NI + noncash expenses – account receivable – others
 CFI = - Acquisition of fixed assets + Sales of fixed assets Total debt
 Debt – equity ratio = Total equity
 CFF = - Retirement of LT debt + proceeds from LT debt sales – notes payable –
Total assets
dividends – repurchase + proceeds from new stock issue  Equity multiplier = Total equity = 1+ Debt-equity ratio

 CF from financing: EBIT

 Times interest earned ratio (TIE) = Interest
 CF(A) ≡ CF(B) + CF(S)
EBIT +( Dep+ Amortization)
 CF(A) = OCF + ICF/NCS + FCF  Cash coverage ratio =
Interest
 CF(A) = OCF – NCS - ∆NWC Interest bearing debt

 OCF = EBIT + Dep – Current tax EBITDA

 ICF/NCS = Purchase of new FA – Sales of current FA 3. ASSET MANAGEMENT OR TURNOVER MEASURES:

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Cost of goods sold ¿ Sales Assets

 Inventory turnover = Inventory
 ROE = = Sales x Assets
x Equity = Profit margin x TAT x Equity
365 days multiplier
 Days’ sales in inventory = Inventory turnover
IV. FINANCIAL MODELS:
Sales
 Receivables turnover = Accounts receivable External Financing Needed (EFN):
365 days  EFN = Total projected assets – total projected liabilities and equity
 Days’ sales in receivables (ACP) = Receivables turnover Assets Spotaneousliabilities
 EFN = x ∆Sales - x ∆Sales – (PM x projected sales)
Sales Sales Sales
 Total asset turnover (TAT) =
Total assets x (1 – d)
Total assets
 Capital intensity = Sales  d = Total dividend
¿
4. PROFITABILITY MEASURES: The internal growth rate (IGR)
¿ ROA x b
 Profit margin = Sales  IGR =
1−( ROA x b)
EBITDA
 EBITDA margin =  b=1–d= Retained earnings
Sales ¿
¿
 ROA = Total assets The sustainable growth rate (SGR)
ROE x b
Sales ¿ Sales Assets  SGR =
 ROE = = Sales x x Equity 1−(ROE x b)
Total equity Assets
5. MARKET VALUE MEASURES: CHAPTER 4: DISCOUNTED CASH FLOW VALUATION
¿
 EPS = Shares outstanding 1. THE ONE-PERIOD CASE (SINGLE PERIOD):
Price per share  FV = CF0 x (1 + r)
 PE ratio =
EPS
FV
Market value per share  PV =
 Market-to-book ratio = 1+r
Book value per share
 NPV = - Cost + PV
 Market Capitalization = Price per share x Shares outstanding
2. MULTIPLE PERIOD CASE:
 EV = Market capitalization + Market value of interest bearing debt – Cash
 FV = PV x (1+r) T
EV
 EV Multiples = Where PV: CF at date 0
EBITDA
III. THE DUPONT IDENTITY: R: approximate interest rate
Total debt T: number of periods
 ROE = ROA x Equity multiplier = ROA x (1+ )
Total equity SIMPLE INTEREST:

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 FV = PV (1+T*r) GROWING ANNUTITY (growing CF with a fixed maturity):

( ( 1+g
1+ r )
T
FV CF 1 )
 PV =  PV = [1 - ]
(1+T∗r ) r −g
COMPOUND INTEREST:
CHAPTER 5: NPV AND OTHER INVESTMENT RULES
 FV = PV (1+r) T
MULTIPLE CASH FLOWS: NET PRESENT VALUE (NPV):
 FV = CF1(1+r) + CF2(1+r) + … + CFT
T-1 T-2  NPV = Total PV of future CF’s – Initial investment (cost)
C1 C2 CT THE INTERNAL RATE OF RETURN (IRR):
 PV = 1+r + +…+
(1+r )2 (1+r )T C1 C2 C3 CT
 NPV = - Cost + 1+IRR + + +…+ =0
COMPOUNDING PERIOD: (1+ IRR )2 (1+IRR )3 (1+IRR )T
mT
r THE PROFITABILITY INDEX (PI):
 FV = C0 (1+ )
m Total PV
 PI =
APR m Initial investment (cost )
 EAR= (1 + ) –1
m
CONTINUOS COMPOUNDING: CHAPTER 15: RAISING CAPITAL
 FV = C0 x e rT

3. SIMPLIFICATIONS:
PERPETUITY (constant CF that last forever):
C C C C
 PV = + + +…=
(1+r ) (1+r )2 (1+r )3 r
GROWING PERPETUITY: (growing at constant growth rate forever):
C1 C 0(1+ g)
 PV = = (r=g)
r−g r−g
ANNUITY (constant CF with a fixed maturity):
C 1
 PV = [1- ]
r (1+r )T
C 1
 FV = [ - 1]
r (1+r )T
1
 PVFA = [1- ]
(1+r )T
1
 FVIFA = [ - 1]
(1+r )T

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