F3 Formulae

Question 1

Total Shareholder Return as a %

Answer 1

Dividend per share + capital gain /

Share price at the start of the year x 100

Question 2

Share price

Answer 2

P/E ratio x EPS

Question 3

Earnings per share

Answer 3

Profits distributable to ordinary shareholders (Profits after tax, interest and preference dividends) /
Number of ordinary shares

Question 4

Total shareholder return as an amount

Answer 4

Capital gain on share price + dividends received during the year

Question 5

Return on equity (shareholders funds)

Answer 5

Earnings / Shareholders funds

Question 6

P/E Ratio

Answer 6

Share price / EPS

Question 7

Shareholders funds as an amount if not given in question:

Answer 7

Ordinary shares + reserves (book value)

Question 8

Gearing

Answer 8

Debt / Equity (shareholders funds)
or
Debt / Debt + Equity

• Look out in Q whether it states book values or market values!!

Question 9

Interest cover

Answer 9

PBIT /

Interest

Question 10

Annual compound growth rate

Answer 10

n √[ (Latest dividend) / (Earliest dividend) -1]

Question 11

ROCE

Answer 11

PBIT / Capital employed

* Capital employed = shareholders funds + LTD

Question 12

Dividend yield

Answer 12

Dividend per share /

Market price per share x 100

Question 13

Convertible bonds conversion value

Answer 13

Conversion ratio x market price per share

Question 14

Convertible bonds conversion premium

Answer 14

Current market value - conversion value

Question 15

Value of rights (rights issue)

Answer 15

TERP - issue price /
N

n = no of rights required to buy one share

Question 16

Yield adjusted TERP

Answer 16

1 / N+1 x

[(N x cum-rights price) + (issue price x (y new / y old)]

Question 17

Ke - dividend growth model

Answer 17

Ke = D1 /

P0 + g

Question 18

Estimating g using current reinvestment levels

Answer 18

g = return on equity x balance reinvested

Question 19

CAPM formula

Answer 19

Ke = Rf + (Rm - Rf) x B

Question 20

WACC

Answer 20

Keg x (Ve / Ve + Vd) + Kd(1-t) x (Vd / Vd+Ve)

Question 21

Value of debt plus equity in a geared company

Answer 21

Vg = Vu + Tb

Vu = value of equity in an equivalent ungeared company
Tb = tax shield on debt

Question 22

Cost of equity of a geared company

Answer 22

Keg = Keu + [(Keu - Kd) x (Vd(1-t) / Ve)]

Question 23

M&M adjusted WACC formula

Answer 23

WACC = Keu x (1 - Vdxt / Ve + Vd)

Question 24

Value at risk (VaR)

Answer 24

confidence interval x standard deviation

• Confidence interval = comes from normal distribution table

Question 25

Daily Sigma (o)

Answer 25

Given σ ÷ √Number of days covered

Question 26

PPP theory or IRP formula

Answer 26

S1 = So x (1 + r var) / (1 + r base)

r var = interest rate of variable currency (1.2842 USD)
r base = interest rate of base currency (1 GBP)

Question 27

Finding the real interest rate

Answer 27

(1 + r nominal) = (1 + r real) x (1 + inflation)

Question 28

Dividend valuation method formula

Answer 28

D0 = d1 / (Ke - g)

Question 29

P/E Method of valuation formula

Answer 29

Earnings of target x appropriate P/E ratio

Question 30

Earnings yield method of valuation

Answer 30

Prospective earnings (in one year) x (1 / Ke)

Question 31

Ungearing a beta (calculating an asset beta)

Answer 31

Beu = Beg x (Ve / Ve + Vd(1-t) + Bd x (Vd(1-t) / Ve + Vd(1-t)