PRINCIPLES OF FINANCE

A. Time value of money

1. Single amount

2. Annuities
a) Ordinary annuities

b) Annuities due

3. Perpetuity

4. Compound interest more frequently than annually 5. Continuous compounding

6. Effective annual rate

B. Capital budgeting
1. NPV

=> NPV<0 → reject; NPV≥0 →

accept
2. PI

=> PI ≥1 ⇒ accept
3. IRR

=> IRR ≤ r ⇒ reject; IRR ≥ r ⇒ accept

C. Bond Valuation
1. Zero-coupon bonds

2. Coupon bonds

3. Bonds that pay every 6 months

D. Stock Valuation
1. Discounted cash flow model

=> Stock value is the sum (in PV) of all future dividends:

2. Constant dividend assumption

3. Gordon growth model

E. Rate of Return
1. RoR of a Bond

2. Expected RoR
3. Variance of Return 4. Standard deviation

5. Coefficient of variation 6. Historical risk - Variance

7. Portfolio Return

8. Portfolio variance

F. Liquid Ratio
1. Current ratio 2. Quick (acid) ratio

G. Activity Ratio
1. Inventory Turnover 2. Total asset turnover

3. Average collection period 4. Average payment period

H. Debt Ratio
1. Debt Ratio 2. Debt-to-equity ratio

3. Times interest earned/Interest coverage ratio

4. Fixed-payment coverage ratio

I. Profitability Ratio
1. Gross profit margin

2. Operating profit margin

3. Net profit margin

4. Earning per share (EPS)

5. Return on total assets (ROA)

6. Return on equity (ROE)

J. Market Ratio
1. Price/Earnings (P/E) ratio

2. Market/Book (M/B) ratio