Calculations Flashcards
What is the current yield (stock)?
annual dividend/current market price
the return on the investment that the buyer can expect to experience
What is the current yield (bond)?
annual interest/current market price
this is the rate of return on a bond investment
What is the tax-free equivalent yield?
corporate rate x (100% - tax bracket)
What is the tax-equivalent yield?
municipal rate/(100%-tax bracket)
the return a taxable bond would need to yield in order to equal the yield on a comparable tax-exempt bond
How do you calculate the NAV of a mutual fund share?
fund NAV/number of shares outstanding
How do you calculate the Dollar Cost Average?
total dollars invested/number of shares purchased
How do you calculate shareholder’s equity?
Assets - liabilities
How do you calculate total return?
income (dividends or interest) + gain/loss divided by original investment
How do you calculate inflation-adjusted return?
[income (dividends or interest) + gain or loss/original investment] - CPI
How do you calculate Alpha when risk-free rate is NOT given?
Actual Return - (Beta x market return)
How do you calculate Alpha when risk-free rate is given?
(actual return-RF) - (beta x [market return-RF)}
How do you calculate the Sharpe Ratio?
actual return - RF/standard deviation
measures the risk adjusted return of an investment
What is Net Working Capital?
current assets - current liabilities
measures an entity’s liquidity OR solvency AKA ability to pay their debts
What is Market Cap/Capitalization?
the number of outstanding common shares x market price per share
What is the book value per share?
total assets - liabilities / # of outstanding shares
What is Negative Net Present Value?
what occurs from the calculation that determines the money generated in the future is NOT worth more than the initial investment cost
What is the risk-adjusted return?
return of an investment in relation to the degree of risk taken
What is the Dividend Discount Model?
used to determine the value of the stock today by determining the present value of all future dividends
What is Discounted Cash Flow?
helps determine the value of an investment based on its future cash flows
if the DCF is above the current cost of the investment, the opportunity could result in positive returns
What is Net Present Value?
the difference between the present value of cash inflows and the present value of cash outflows over a period of time
used to calculate current total value of a future stream of payments
What is the current ratio?
current assets / current liabilities
measures a company’s short term financial health
gauges their ability to pay their current liabilities
What is the Gross Domestic Product?
consumer spending + government spending + business spending + exports - imports
national output of goods and services
broad measure of economic health
What is the Balance Sheet Equation?
assets - liabilities = net worth
tells you the net worth of a company
a moment in time, snap shot of the net worth
What is cash flow? How do you calculate it?
net income (or loss) + current depreciation + amortization
actual cash generated by operations
What is the Quick Ratio (Acid Test Ratio)?
current assets - inventory / current liabilities
stricter measurement of a company’s abilities to pay its short term obligations
What is the debt to equity ratio?
total liabilities / stockholders equity
measures how risky a business’ capital structure is
how leveraged (how much in debt) a corporation is
What is the dividend payout ratio?
annual dividend / earnings per share
measures generosity of the issuer’s board of directors
shows an investor how much of the year’s earnings were returned to shareholders
What is future value?
the value of a current asset at some point in the future based on an assumed rate of growth
FV = I x [I + (R x T)}
I = investment amount R = interest rate T = # of years
What is the price to earnings ratio?
market price / earnings per share
compares the stock’s current market price relative to its earnings per share
used to determine whether a stock is fairly priced in the market
How do you find the put spread breakeven?
high strike price - net premium
How do you find the call spread breakeven?
low strike price + net premium
What are the formulas for a Long Put? (max gain, max loss, breakeven)
Max Gain = (strike price - premium paid) x 100
Max Loss = premium paid
Breakeven = strike price - premium
What are the formulas for a short put? (max gain, max loss, breakeven)
Max Gain = premium received
Max Loss = (strike price - premium) x 100
Breakeven = Strike Price - premium
What are the formulas for long calls (max loss, max gain, breakeven)?
Max Gain = unlimited
Max Loss = premium paid
Breakeven = strike price + premium
What are the formulas for a short call? (max gain, max loss, breakeven)
Max Gain = premium received
Max Loss = unlimited
Breakeven = strike price + premium
How do you calculate earnings per share (EPS)?
net income - preferred dividend / common shares outstanding
measures the portion of the issuer’s earnings that is available to common stockholders
