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Evaluation of Financial Policy

GBA 546
Formula Sheet
Prepared by P. Sarmas

Tax Liability
Average Tax Rate
Taxable Income

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders

Operating Cash Flow Interest Paid Dividend Paid


- Net Working Capital - Net New Borrowing - Net New Equity
- Net Capital Spending Cash Flow to Creditors Cash Flow to Stockholders
Cash Flow from Assets

EBIT Ending Net Fixed Assets


+ Depreciation - Beginning Net Fixed Assets
- Taxes + Depreciation .
Operating Cash Flow Net Capital Spending

Ending Net Working Capital (CA CL)


- Beginning Net Working Capital (CA-CL)
Change in Net Working Capital

Ending L.T. Debt Ending Equity


- Beginning L.T. Debt - Beginning Equity
Net New Borrowing - Addition to Retained Earnings
Net New Equity

Current Assets
Current Ratio
Current Liabilities

Current Assets - Inventories


Quick Ratio
Current Liabilities
Cash
Cash Ratio
Current Liabilities

Total Debt Total Assets - Total Equity


Total Debt Ratio
Total Assets Total Assets

Total Debt
Debt - to - Equity Ratio
Total Equity

EBIT
Time Interest Earned
Interest

EBIT Depreciation
Cash Coverage Ratio
Interest

EBIT Lease Pmt.


Fixed Charge Coverage Ratio
Sinking Funds
Interest Lease Pmt.
1T

Total Assets D 1
Equity Multiplier or EM 1
Equity E D
1
TA

Sales
Total Assets Turnover
Total Assets

Sales
Fixed Assets Turnover
Net Fixed Assets

Sales Cost of Goods Sold


Inventory Turnover OR
Inventory Inventory
Receivables
ACP or DSO
Sales
365

Net Income
Profit Margin (ROS)
Sales

Net Income
ROA
Total Assets

Net Income
ROE
Common Equity

Net Income Interest Preferred Dividnd


Return on Capital
Debt Common Equity Preferred Stock

EBIT
Basic Earnings Power
Total Assets

Net Income
Earnings per Share
No. Shares Outstanding

Market Price per Share


Price - Earnings Ratio
EPS

Dividend Payout Ratio = Dividends Net Income

ROADuPont = Profit Margin * Total Assets t/o


Market Price per Share
Market Value - Book Value Ratio
Book Value per Share
ROEDuPont = Profit Margin * Total Assets t/o * Equity Multiplier

ROA * b
Internal Growth Rate
1 - (ROA * b)

ROE * b
Sustainable Growth Rate
1 - (ROE * b)

Earnings Retention Ratio = b = 1 Dividend Payout Ratio = 1- DIV/NI

r m*t
FV PV (1 ) PV * FVIF r
m m
,mt

(1 r ) t 1
FVA C * C * FVIFAr , t
r

1 1
PVA C * t C * PVIFAr , t
r r * (1 r )

C
PVPerpetuity
r

(1 r ) t 1
FVA C due * * (1 r ) C due * FVIFAr , t * (1 r )
r

1 1 FV
Bond Value C * t
1
r r * (1 r )
(1 r ) t
1
PVA C due * t
* (1 r ) C due * PVIFAr , t * (1 r )
r r * (1 r )

(1+R) = (1+r)*(1+h)
Coupon
Coupon Rate
FV
Coupon
Current Yield
VB
1 1 FV
VB C * t
YTM YTM * (1 YTM ) (1 YTM ) t

D1 D2 D3
P0 1
2
........
(1 r ) (1 r ) (1 r ) 3
D1 D2 D3 Dn Dn 1 1
P0 ..... * n
r g c (1 r )
1 2 t n
(1 r ) (1 r ) (1 r ) (1 r )

D
P0
r
D1
P0
rg
D
r 1g
P0
Dn D0 * (1 g ) n

n
CFt
NPV (CF0 )
t 1 (1 r ) t

n
CFt
(1 IRR)
t 1
t
(CF0 ) 0

Last Negative Cum. CF


PBP t
CFt 1

n
CFt
(1 r )
t 1
t
PI
CF0
n

Net Income
t 1
t

ARR n
Beginning Value Investment Ending Value Ivestment
2

n
COFt CIF * (1 r )
t
n t

(1 r )
t o
t
t 1

(1 MIRR) n

Operating Cycle = Inventory Period + Accounts Receivable Period

Cash Cycle = Operating Cycle Accounts Payable Period


Cost of Goods Sold
Inventory Turnover
Average Inventory

365
Inventory Period
Inventory Turnover

Credit Sales
Receivable Turnover
Average Accounts Receivable

365
Receivable Period
Receivable Turnover

Cost of Goods Sold


Payable Turnover
Average Payable

365
Payable Period
Payable Turnover

Beginning End
Average
2

Operating Cash Flow = EBIT + Depreciation Taxes

Operating Cash Flow = (Sales OC Depreciation)*(1-T) + Depreciation

Operating Cash Flow = Net Income + Depreciation


Operating Cash Flow = (Sales OC)*(1 T) + T*Depreciation

Book Value of Asset = Original Cost Accumulated Depreciation

Original Cost Salvage Value


Straight Line Depreciati on
n

VC = Q*v
TC = VC + FC
NI = (S FC VC D)*(1-T)

FC OCF
Q general
Pv
FC D
Q Accounting BEP
Pv
FC
QCash BEP
Pv
FC OCF *
Q Financial BEP
Pv
FC
DOL 1
OCF

Q ( P v)
DOL
Q ( P v) FC
Q ( P v ) FC EBIT
DFL
Q( P v) FC Int EBIT Int
Q( P v)
DTL DCL DOL * DFL
Q( P v ) FC Int

Pt 1 Pt
Capital Gain Yield
Pt

R t
R t 1

T
1

VAR ( R ) ( R1 R ) 2
( R 2 R ) 2
......... ( RT R )2
T 1
Standard Deviation or SD(R) VAR(R)
E(Rp) = WA*E(RA) + WB*E(RB)
R = E(R) + U

n
E ( R) Pr . s * Rs
s 1
n
2 Pr .s * [ Rs E ( R )] 2
s 1
n
2 Pr * [ R
s 1
s s E ( R )]2

n
p W j * j
j 1

W A WB ..... W N 1

E(R j ) R f
Slope
j

D1 D * (1 g )
RE g 0 g
P0 P0
RE R f E * ( RM R f )
D
RP
P0
E P D
WACC * RE * RP * R D * (1 t c )
V V V
V EPD

WACC = WE*RE + WP*RP + WD*RD*(1-tc)


WE + WP + WD = 1

FV P0
Coupon
YTM approximate n
FV 2 P0
3
(Revenue - Total Variable Costs - Fixed Costs - Interest) * (1 - t) ( EBIT Interest ) * (1 t )
EPS
Number of Shares Outstanding Number of Shares Outstanding

(Revenue - Total Variable Costs - Fixed Costs - Interest) * (1 - t) ( EBIT Interest ) * (1 t )


ROE
Equity Equity

EBIT (1 T )
Vu
Ru
( EBIT Int )(1 T )
Vl
WACC
Modified Accelerated Cost Recovery System
VL VU Property Class
VL VU Tc * D Year 3-Year 5-Year 7-Year
RE R A ( R A RD ) * D / E 1 33.33% 20.00% 14.29%
D
L U 1 (1 T )
2 44.44% 32.00% 24.49%
E 3 14.82% 19.20% 17.49%
4 7.41% 11.52% 12.49%
EBIT K d D (1 T )
S 5 11.52% 8.93%
Ks
6 5.76% 8.93%
V SD
7 8.93%
V D0
P 8 4.45%
n0
D
n1 n0
P
(1 Tc )(1 Ts )
Vl Vu 1 D
(1 Td )

DPO = Dividend Net Income


Dividend Yield = Dividend per share Price per share