ALL FORMULAS Flashcards
Gross profit Margin
sales - cost of goods sold
gross profit margin ratio
Sales revenue - cogs (this is gross margin) / sales
Looks at direct cost of the goods or services offered
Looks at revenues - cogs and not account for the additional costs associated with doing business
the higher the better
Operating margin (ebit margin) definition
Looks at company’s earnings after subtracting the cogs and operating expenses which are general business expenses unrelated to direct cost of production
Measurement of proportion of a company’s revenue that is left after paying for variable costs of production ex wages, raw materials, any cost that is not fixed
Operating margin of profit formula
Operating profit / net sales
operating income
Revenue - COGS - operating expenses and depreciation
synonymous with EBIT
Net sales
amount of sales generated after returns are deducted and allowances made
Net Profit Margin or Profit Margin definition
a ratio that measures how much of every dollar in sales revenue becomes profit
Looks at earnings after all expenses
Profit margin formula
net income after tax / net sales
the net profit margin looks at net income which is earnings after COGS, operating expenses, and interest and tax expenses
As expenses of a company rises, the net profit margin may shrink
In other words, the net margin looks at earnings after all expenses are accounted for
earnings per share
Net income / weighted average outstanding shares
Company’s NI expressed on a per share basis
NOTE- this only references common stock and any p stock dividends is subtracted from the net income as below:
(net income - preferred dividends)/ number of common shares outstanding
dividend payout ratio
Dividends / net income
Amount of dividends paid to stockholders relative to the amount of total net income of a company and amount held by company is for growth and called retained earnings
Cash dividends to common shareholders / (Net income - preferred dividends)
net working capital (or working capital)
current assets - current liabilities
Determines company’s liquid assets by subtracting its current liabilities
liquidity measure of how well the firm meets its current obligations w the resources that it has
current ratio
current assets / current liabilities
Assets that can be realized or liabilities that are payable in less than a year
measure of short term liquidity
higher current ratio implies higher liquidity
Quick ratio (acid test)
(current assets - inventories) / current liabilities
Current assets - inventories = quick assets
Provides an idea of how solvent a company is without requiring sales to cover the short debt, which differentiates it from current ratio
(Cash + marketable securities + net receivables) / current liabilities
excludes inventories from current assets because this metric is only concerned with the most liquid assets
debt to equity ratio
long term debt / total equity
measure of a firm’s leverage and see company’s ability to handle its long term and short term obligations
Debt may be shown as total liabilities and equity may show as total stockholders equity
higher means more leveraged
nominal interest rate
stated interest rate at time the agreement is entered into
real interest rate
accounts for inflation
if nom is 5% and infaltion is 2%, we take 1.05 / 1.02 = 1.0294
approximate the rate by subtracting inflation rate from the nominal rate
federal funds rate
overnight lending interest rate banks charge one another to borrow money
effected by open market actions of fed
federal discount rate
amount of interest a central bank charges private banks for short term loans
prime rate
derived from the base federal funds rate
wsj prime rate is most common prime rate and changes whenever banks need to alter the rates at which borrowers obtain funds
easy calc - fed funds rate + 300 basis points
balance of payments
record of all payments or monetary transactions between a particular country and other nations during a specific time period
current account - any exchange of finished goods and services ex. tourism, for consumption purposes
capital account - tracks movement of capital going in and out of the country for investment purposes
financial account - records payment flows related to the change of ownership in international financial assets and liabilities
current account = capital account + financial account (IN THEORY)
ROI
(Earnings - initial investment) / investment
ROI = income / invested capital
a measure of profitability that controls for the size of the capital invested
required rate of return
consider the current risk free rate in government bonds, risk of investing in the stock market, business risk
sum of those elements becomes the required ror
total return
((Dividend + (P1 - P0)) / P0
risk premium
Ra - Rf
Where: Ra is asset or investment return and Rf is risk free return
the amount by which the market return exceeds the risk free rate
formula = rate of return expected for the market - risk free rate
the reward that investors demand for holding a portfolio with a beta of 1
we can use it to firn the risk premium of a stock or a portfolio using the CAPM
