Corporate Finance Flashcards
Expected return
Sum of (Returns x Probabilities)
Holding Period Return (HPR) of common stock
((Ending period price - Beginning period price) + Dividends) /
Beginning period price
Standard deviation (σ)
Square root of:
(the sum of (return - average return) squared) x probability of that return occuring
Coefficient of Variation (CV)
σ / Expected return
Covariance
Sum of: Probability x (Return on asset 1 - Expected return on asset 1) x (Return on asset 2 - Expected return on asset 2)
Correlation coefficient (or correlation)
Covariance / (σ1 X σ2)
Portfolio return
Some of the weight of expected returns of each security in the portfolio
CAPM
Ke = Rf + β(Km − Rf)
Degree of operating leverage (DOL)
Contribution margin / Operating income
Degree of financial leverage
(% change in net income) / (% change in EBIT)
Or
EBIT / EBT
Degree of total leverage (DTL)
DOL × DFL
Effective duration (of a bond)
(V− minus V+) /
(2 x current bond price) x change yield
Value of a bond
Vb = I(PVIFAk, n) + F(PVIFk, n)
Basic dividend discount model
Sum of:
Dividends / (1 + req rate of return) to the nth power
Zero dividend growth model
Dividend / Required rate of return of stock
Constant dividend growth model
Current Dividend x (1 + g) to the nth power
/ (1 + req rate of return) to the nth power
Gordon constant growth model
Expected dividend per share /
Required rate of return - Constant (annual) growth rate
Trailing P/E Ratio
Market price per share / EPS over previous 12 months
Leading P/E Ratio
Market price per share / Forecasted EPS over next 12 months
Price to book (P/B) ratio
Market value of equity / Book value of equity
=
Market price per share / Book value per share
Price to sales ratio
Market value of equity / Total sales
=
Market price per share / Sales per-share
Value of preferred stock
Dividend / Rate
Cost of capital
ka = p1 k1 + p2 k2 + . . . + pn kn
After tax cost of debt
kd(1 − t)
Cost of preferred stock
Dividend / (Dividend - Flotation costs)
Dividend growth rate model
(D1 / P0) + g
Cost of new equity
(D1 / (P0 - (F + U))) + g
Weighted average cost of capital (WACC)
Sum of: (weight) x (after tax cost of each capital component)
Net Benefit from Lockbox
Reduction in Float Opportunity Cost + Reduction in Internal Processing Costs − Lockbox Processing Costs
Average collection period
365 days / Accounts Receivable turnover
Inventory turnover
COGS / average inventory
Days on hand
365 / Inventory turnover
Effective annual rate of interest
See book
