Formula Sheet-K45 - Corporate Finance - Essential Concepts & Formulas

FORMULA SHEET CASH FLOWS
Operating cash flow (OCF) = EBIT + depreciation – taxes
Net capital spending (NCS) = purchases of fixed assets – sales of fixed assets
NCS = ending net fixed assets – beginning net fixed assets + depreciation
Changes in NWC = ending NWC – beginning NWC
Cash flow to creditors = interest paid + retirement of debt – proceeds from new debt
h flow to creditors = interest paid – net new borrowing=
terest paid – (ending long-term debt – beginning long-term debt)
Cash flow to stockholders = dividends paid + stock repurchases – proceeds from new stock issues
sh flow to stockholders = dividends paid – net new equity raised = dividends paid – (ending common stock, capital
surplus & Treasury stock – beginning common stock, capital surplus & Treasury stock)
SHORT-TERM SOLVENCY RATIOS
Current ratio = Current assets ÷ Current liabilities
Quick ratio = (Current assets – Inventory) ÷ Current liabilities
Cash ratio = Cash ÷ Current liabilities
FINANCIAL LEVERAGE RATIOS
Total debt ratio = Total debt ÷ Total assets = (Total assets – Total equity) ÷ Total assets
Debt-equity ratio = Total debt ÷ Total equity
Equity multiplier = Total assets ÷ Total equity = 1 + debt-equity ratio
Times interest earned = Earnings before interest and taxes ÷ Interest
Cash coverage = (Earnings before interest and taxes + depreciation + amortization) ÷ Interest TURNOVER RATIOS
Inventory turnover = Cost of goods sold ÷ Inventory
Days sales in inventory = 365 ÷ Inventory turnover
Receivables turnover = Sales ÷ Receivables
Days’ sales in receivables= 365 ÷ Receivables turnover
Total asset turnover = Sales ÷ Total assets
Days in inventory = Days in period ÷ Inventory turnover PROFITABILITY MEASURES
Profit margin = Net income ÷ Sales
Return on assets = Net income ÷ Total assets
Return on equity = Net income ÷ Total equity
EBITDA margin = EBITDA ÷ Sales MARKET VALUE RATIOS
Price-to-earnings ratio = Market price per share ÷ Earnings per share
Market-to-book ratio = Market price per share ÷ Book value per share
Market capitalization = Market price per share x Shares Outstanding
Enterprise Value (EV) = Market capitalization + Market value of interest bearing debt – cash EV Multiple = EV ÷ EBITDA DUPONT IDENTITY
ROA= Net income x Sales Sales Total assets
RO E= Net income x Sales x Totalassets Sales
Totalassets Total equity
ROE=Profit margin xTotal asset turnover x Equity multiplier
COMPOUNDING AND DISCOUNTING
FV =PV (1+r )t PV = FV (1+r )t Effective annual rate FV of Ordinary Annuity APR m
FV =CF [(1+ r)t−1 ] EAR=(1+ m ) −1 PV of Ordinary Annuity 1 FV of Annuity Due −(1+r )−t (1+r )t−1 PV =CF PV of Annuity Due [ FV r ] =CF (1+ r) PV of Ordinary Perpetuity [ r ]
PV =CF (1+ r)[1−( r1+r)−t] PV =CF r PV of Perpetuity Due
General asset valuation n PV CF = CF (1+r ) t r V =∑
t =1 (1+r )t
NPV = - Cost + Present Value of Cash inflows
PI = Present value of cash∈flows = NPV +1
Cost of investment (I) I
+ Straight – line depreciation:
Dep= Installed cost of asset Useful life of asset + MACRS depreciation
Dep=MACRS rate∗Installed cost of asset
After tax salvage value =Sales of asset – tc% * (Sales of asset – Book value of asset
Book value of asset = Instal ed cost of asset – Accumulated depreciation
Value of unlevered and levered firm: VU=EBIT ∗¿¿ VL = VU + B*tc% and VL = B + SL
Expected return of equity capital (with tax):
RS = R0 + (R0 – RB)(B/S)(1-tc%)
The weighted average cost of capital (with tax): R = B R % + S R WACC )
B+ S B(1−tc B+ S s
Operating break-even point (OBP): OBP= FC P−VC
Degree of operating leverage (DOL):
DOL= Percentagechange ∈EBIT
Percentage change∈Sales
DOL at base sales level Q Qx = ( P−VC )
Qx ( P−VC )−FC
Financial break-even point (Break even EBIT): EBIT (1−tc %)
(EBIT −Interest exprense )∗(1−t = c %)
¿outstanding shares(without debt)
¿outstanding shares(with debt)
Degree of financial leverage (DFL):
D F L= Percentage change∈EPS
Percentage change∈EBIT D FLat baselevel EBIT = EBIT
EBIT −I −¿¿ Total leverage (DTL):
D T L= Percentage change∈EPS
Percentage change∈Sales
D T Lat base sales level Q = ∗( P−VC)
Q∗( P−VC )−FC−I −¿¿
DTL=DOL∗DFL
Operating cycle = inventory period + accounts receivable period
Cash cycle = operating cycle – accounts payable period
Economic order quantity of inventory (EOQ) Q¿ 2 = √ TFcc
Document Outline

• CASH FLOWS
• SHORT-TERM SOLVENCY RATIOS
• FINANCIAL LEVERAGE RATIOS
• TURNOVER RATIOS
• PROFITABILITY MEASURES
• MARKET VALUE RATIOS
• NPV = - Cost + Present Value of Cash inflows
• + Straight – line depreciation:
• After tax salvage value =Sales of asset – tc% * (S
• VU=EBIT ∗¿¿VL = VU + B*tc%and VL = B + SL
  • Expected return of equity capital (with tax):
  • The weighted average cost of capital (with tax):
  • Operating break-even point (OBP):
  • Financial break-even point (Break even EBIT):
  • Degree of financial leverage (DFL):
• Total leverage (DTL):
• Economic order quantity of inventory (EOQ)