FORMULAS

SchweserNotes 1 2023 L1
 SchweserNotes 2 2023 L1
Activity Ratios:

Liquidity Ratios:

Solvency Ratios:
Pro itabilityRatios:

Free Cash Flow to the Firm:

Free Cash Flow to Equity:

Coef icients of Variation:

Inventories:

Long-Lived Assets:
Deferred Taxes:

Debt Liabilities:

Performance Ratios:

Coverage Ratios:
 SchweserNotes 3 2023 L1

WACC = (wd)[kd (1 − t)] + (wps)(kps) +

(wce)(kce) after-tax cost of debt = kd

(1 − t) cost of preferred stock = kps =

Dps / P cost of common equity: kce =

Rf + β[E(Rm) − Rf] kce = bond yield +

risk premium

adjusted beta = 2/3 × unadjusted beta +

1/3 unlevered asset beta: target beta:

degree of operating leverage

degree of inancial leverage

degree of total leverage

breakeven quantity of sales

operating breakeven quantity of sales

current ratio

quick ratio

receivables turnover number of days of

receivables
inventory turnover number of days of

inventory

payables turnover ratio

number of days of payables

operating cycle = average days of inventory + average days of
receivables cash conversion cycle

margin call price

price-weighted
preferred stock valuation model: index

one-period stock valuation model:

ininite period model:

multistage model:

earnings multiplier:

expected growth rate: g = (retention

rate)(ROE) trailing P/E
 leading P/E

P/B ratio

whe
re:

P/S ratio

P/CF ratio
 SchweserNotes 4 2023 L1

Quoted add-on yield = HPY × 365/days to maturity

Quoted discount yield = discount on the security × 360/days to
maturity for an annual-coupon bond with N years to maturity:

for a semiannual-coupon bond with N years to maturity:

bond value using spot rates:

full price between coupon payment dates:

(Bond value at last coupon date based on the current YTM) × (1+ YTM/#) t/T
where # is the number of coupon periods per year, t is the number of days from
the last coupon payment date until the date the bond trade will settle, and T is
the number of days in the coupon period. lat price = full price – accrued interest

forward and spot rates: (1 + S2)2 = (1 + S1)(1 + 1y1y)

option-adjusted spread: OAS = Z-spread − option value

money duration = annual modi ied duration × full price of

bond position money duration per 100 units of par value =
annual modi ied duration × full bond price per 100 of par
value price value of a basis point: PVBP = [(V– − V+) / 2] ×
par value × 0.01

duration gap = Macaulay duration − investment horizon

no-arbitrage forward price: F0(T) = S0 (1 +

Rf)T payoff to long forward at expiration =

ST − F0(T)

value of forward at time t: Vt(T) = [St+ PVt (costs) – PVt(bene it)] – F0(T)

(1 + Rf)–(T–t) exercise value of a call = Max[0, S − X] exercise value of a put

= Max[0, X − S] option value = exercise value + time value put-call parity: c

+ X(1 + Rf )–T = S + p put-call-forward parity: F0 (T)(1 + Rf )–T + p0 = c0 +

X(1 + Rf )–T
SchweserNotes 5 2023 L1