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Level I CFA Program Formulas ® •C
•C

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• Solvency Ratios
FINANCIAL REPORTING
FRA C
•C
•C
AND ANALYSIS
EARNINGS PER SHARE
Ratio Numerator Denominator
•
•••
Debt-to-assets ratio Total debt Total assets
•
Total debt + total •
• Basic
BasicEPS
EPS: Debt-to-capital ratio Total debt
(Net income − Preferred dividends) shareholders’ equity ••
= •
Weighted average number of shares outstanding (WASO) Total shareholders’
Debt-to-equity ratio Total debt ••
equity
• Calculation of Diluted EPS: Financial leverage •
Average total assets Average total equity •
ratio •••
Security Formula U•
CALCULATION OF DILUTED EPS: Interest coverage EBIT Interest payments
•
Net income Fixed charge EBIT + Lease Interest payments +
Convertible U
Security Formula coverage payments Lease payments ••
preferred shares WASO + New common shares that would
Net income U
••
Convertible
have been issued at conversion • Profitability Ratios R
•
preferred shares WASO + New common shares that could have been issued at conversion
Convertible debt Net incomeNet income −dividends
– Preferred Prefered+dividends
interest + Interest(1 Ratio
− Tax rate) Numerator Denominator •U
WASO + New (1 −common
Tax rate)shares that could have been issued at conversion RU
Convertible debt •
Stock options and WASO + New common Net income
shares Preferred dividendsGross profit margin
that−would
Gross profit Revenue R
•
warrants have been issued
WASO at+
conversion Operating profit
Net increase in common shares •
Operating income Revenue
margin
Net income − Preferred dividends UU
Stock options
and warrants
Pre-tax margin Earnings before tax Revenue •U
•R
• FCFF = NI + NCC
WASO+ +Int(1 - Tax rate)
Net increase - FCInv - shares
in common WCInv
••
• FCFF = CFO + Int(1 - Tax rate) - FCInv Net profit margin Net income Revenue •
• FCFF
• =FCFE
NI + NCC + Int(1
= CFO - FC-InvTax rate)borrowing
+ Net - FCInv - WC
- Net
Inv debt
• FCFF =repayment
CFO + Int(1 - Tax rate) - FCInv Operating ROA Operating income Average total assets RR
• FCFE = CFO - FCInv + Net borrowing - Net debt repayment R
ROA Net income Average total assets ••
• Activity Ratios •
ACTIVITY RATIOS Return on total Short- and long-term
EBIT
Ratio Ratio Numerator Numerator
Denominator capital
Denominator debt + Equity
Inventory turnover Cost of goods sold Average
ROE inventory Net income Average total equity •
Inventory turnover Cost of goods sold Average inventory
Days of inventory on hand Return turnover
on common Net income - Average common
Days of inventory on 365 Inventory
(DOH) 365 Inventory turnover equity Preferred dividends equity •
hand (DOH)
Receivables turnover Revenue Average receivables ••
Receivables turnover Revenue Average receivables • Extended Dupont Decomposition of ROE
Days of sales outstanding Revenue Assets
Days of sales (DSO) 365 EAT
Receivables turnover EBT EBT
365 Receivables turnover ROE = x x x x •
outstanding (DSO) EBT
Average trade EBIT Revenue Assets Equity •
Payables turnover Purchases ••
Average trade payables
Payables turnover Purchases Net profit margin
payables •
Number of days of payables 365 Payables turnover
Number of days of
365 Payables turnover ROE = Tax burden x Interest burden x EBIT margin x Asset
Average working
payables
Working capital turnover Revenue •
Turnover
capital x Leverage •••
Working capital Average working
Revenue Average net fixed •
turnoverFixed asset turnover capital
Revenue • Valuation Ratios
Average net fixed assets
Fixed asset turnover Revenue
Total asset turnover assets
Revenue Ratiototal assets
Average Numerator Denominator
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Total asset turnover Revenue Average total assets Price to earnings Price per share Earnings per share ••
• Liquidity Ratios Price to cash flow Price per share Cash flow per share

Ratio Numerator Denominator Price to sales Price per share Sales per share
••
Current ratio Current assets Current liabilities Price to book value Price per share Book value per share •
Cash + Short-term
Quick ratio marketable investments + Current liabilities
Receivables
Cash + Short-term Trial Fitch Learning’s CFA Program study platform
Cash ratio Current liabilities
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Cash + Short-term
Defensive Daily cash
marketable investments +
interval ratio expenditures
Receivables
Cash conversion
cycle (net DOH + DSO - Number of days of payables
operating cycle) Fitch Learning is a member of the CFA Institute
Approved Prep Provider Program.

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