Equation List Finance 210 – 13th Edition

CHAPTER 3

I. Short-term solvency or Liquidity Ratios IV. Profitability Ratios

Current Assets Net Income
Current ratio = Current Liabilities Profit margin = Sales

Current Assets−Inventory Net Income

Quick ratio = Return on assets = Total assets
Current Liabilities

Cash Net Income

Cash ratio = Current Liabilities Return on equity = Total equity

Net Working Capital Net Income Sales Assets

Net working capital to total assets = ROE = x Assets x Total equity
Total Assets (Sales)

Current Assets
Interval measure = Average Daily Operating Costs
V. Market Value Ratios
II. Long-term Solvency or financial Price per share
Leverage Ratios PE ratio = Earnings per share
Total Assets−Total Equity
Total debt ratio = Total Assets Market value per share
Market-to-book-ratio = Book value per share
Total Debt
Debt-equity ratio = Total Equity
Price per share
Price-sales Ratio = Sales per share
Total Assets
Equity multiplier = Total Equity
Market value of assets
Tobin’s Q Ratio = Replacement cost of assets
Long−term Debt
Long-term debt ratio = Long−term Debt+Total Equity
Price−earning raio
PEG Ratio = Earnings growth rate(%)
EBIT
Times interest earned ratio = Interest

EBIT+Depretiaton
Cash coverage ratio = Interest
III. Asset Management or Turnover Ratios
Cost of goods sold
Inventory turnover = Inventory

365 days
Days’ sales in inventory = Inventory turnover

Sales
Receivables turnover = Accounts Receivable

365 days
Days’ sales in receivables = Receivable turnover

Sales
NWC turnover = NWC
Sales
Fixed asset turnover = Net Fixed Assets

Sales
Total asset turnover = Total Assets
CHAPTER 5
Future Value of a PV:𝑭𝑽𝒕 = 𝑷𝑽𝟎 (𝟏 + 𝒓)𝒕
CHAPTER 6
𝟏
𝟏−[(𝟏+𝒓)𝒕 ]
Present value of an annuity: 𝑷𝑽𝟎 = 𝑪 𝒙 { }
𝒓

[(𝟏+𝐫)𝐭 −𝟏]
The future value factor for an annuity: 𝑭𝑽𝒕 =
𝐫
𝑪
Present value of perpetuity: 𝑷𝑽𝟎 =
𝒓
𝟏+𝒈 𝒕
𝟏−( )
𝟏+𝒓
Present value of a growing annuity: 𝑷𝑽𝟎 = 𝑪 𝒙 [ ]
𝒓−𝒈

𝑪
Present value of a growing perpetuity: 𝑷𝑽𝟎 =
𝒓−𝒈

𝑸𝒖𝒐𝒕𝒆𝒅 𝒓𝒂𝒕𝒆 𝒎
Effective Annual rate (EAR), EAR = [𝟏 + ] −𝟏
𝒎

Effective Annual rate (EAR), with Continuous Compounding: EAR =

𝒆𝒒 − 𝟏
CHAPTER 7
1
1−( ) 𝐹
(1+𝑅)𝑡
Bond value = 𝐶 [ ] + (1+𝑟)𝑡
𝑟

CHAPTER 8
D1 + P1
P0 =
1+R

D
P0 =
R
D0 x (1 + g) D1
P0 = =
R−g R−g
Dt x (1 + g) Dt+1
Pt = =
R−g R−g
D1 1 + g1 t Pt
P0 = x [1 − ( ) ]+
R − g1 1+R (1 + R)t
Dt+1 D0 x (1 + g1 )t x (1 + g 2 )
Pt = =
R − g2 R − g2
 D1
R= +g
P0
Price at time t Pt = Benchmark PE ratio x EPSt
CHAPTER 10
OCF = Net income + Depreciation
OCF = Sales – Costs – Taxes
OCF = (Sales – Costs) x (1- TC ) + Depreciation x TC
CHAPTER 13
E(R) = ∑𝒋 𝑹𝒋 𝒙 𝑷𝒋
𝛔𝟐 = ∑[ 𝑹𝒋 − 𝑬(𝑹)]𝟐 𝒙 𝑷𝒋
𝒋

𝛔 = √𝛔 𝟐

Risk premium = Expected return – risk-free rate

𝒏

𝑬(𝑹𝒑 ) = ∑ 𝒙𝒊 𝐱 𝑬(𝑹𝒊 )
𝒊=𝟏

Total return = Expected return + Unexpected return

R =E(R) + U
Announcement = Expected part + Surprise
R =E(R) + Systematic portion + Unsystematic portion
Total risk = Systematic risk + Unsystematic risk
𝑛

𝛽𝑃 = ∑ 𝑥𝑖 x 𝛽𝑖
𝑖=1

𝐸(𝑅𝑖 ) = 𝑅𝑓 + [ 𝐸(𝑅𝑀 ) − 𝑅𝑓 ] 𝑥 𝛽𝑖
CHAPTER 14
𝐷1
𝑅𝐸 = +𝑔
𝑃0

𝑅𝐸 = 𝑅𝑓 + β𝐸 𝑥 (𝑅𝑀 − 𝑅𝑓 )
 𝐷
𝑅𝑃 =
𝑃0

V=E+D

E D
100% = +
V V

E D
WACC = ( ) x R E + ( ) x R D x (1 − TC )
V V
E P D
WACC = ( ) x R E + ( ) x R p + ( ) x R D x (1 − TC )
V V V