FORMULA SHEET

Ratio
Current ratio = Total asset turnover = Sales/Total assets
Current assets/Current liabilities

Acid-test (Quick) ratio = Fixed asset turnover =

(Current assets – inventory)/Current liabilities Sales/Net plant & equipment

Average collection period = Gross profit margin = Gross Profit/Sales

Accounts receivable / Daily credit sales

Accounts receivable turnover = Operating profit margin =

Annual credit sales/Accounts receivable Net operating income or EBIT/Sales

Inventory turnover = Net profit margin = Net income/ Sales

Cost Of Goods Sold/ Inventories

Days’ sales in inventory = Operating return on assets =

365/Inventory turnover Net operating income or EBIT/Total assets

Return on equity =
Net income /Common equity

Debt ratio = Total liabilities/Total Asset Price –Earnings ratio =

Market price per share/EPS*

Times interest earned = Market-to-book ratio =

Operating income or EBIT/Interest expense Market price per share/Book value per share

*EPS = Earnings per share = Net income/Common shares outstanding

Time Value of Money

FV = PV (1+i)n PV = PMT/i
PV = FV [1/(1+i)n] PV = PMTperiod1/i-g
EAR = [1+ inom/m]m - 1

FV = PMT [(1+i)n – 1 / i]
PV = PMT [{1 – 1/(1+i)n} /i]
FV = PMT [(1+i)n -1/i](1+i)
PV = PMT [1- 1/(1+i)n]/i (1+i)

1
Risk and Return
n
E ( R)  pRi 1
i i

n
σ 2   pi ( Ri  E ( R)) 2
i 1

m
E ( RP )   w j E ( R j )
j 1

RP = w1R1 + w2R2 + … + wmRm

E(RA) = Rf + A[E(RM) – Rf]

Bond Valuation

Stock Valuation
Vcs= Present Value of (dividend + expected price)
= (D1 + P1)/1+k

Vcs = D0(1+g)/r-g

Cost of Capital
Kd = Yield (1-Tax rate)
Kps= Dps/Pps
Kcs = rf + β(rm-rf)
Kcs = (D1/ Pcs) + g
WACC = (kd x wd) + (kcs x wcs) + (kps x wps)

2
Capital Budgeting
NPV = CF1/(1+k)1 + CF2/(1+k)2 + ……. + CFn/(1+k)n - CF0

PI = CF1/(1+k)1 + CF2/(1+k)2 + ……. + CFn/(1+k)n

CF0

IRR = CF1/(1+k)1 + CF2/(1+k)2 + ……. + CFn/(1+k)n = CF0

PB = Intial Payments/Annual Cash Inflows