Financial Statements

Question 1

Working Capital =

Answer 1

Current Assets - Current Liabilities

Question 2

Return on Equity =

Answer 2

Net Income / Shareholders’ Equity

Question 3

Compounded Annual Growth Rate =

Answer 3

((EV/BV)^1/n) - 1

EV Ending Value
BV Beginning Value

Question 4

Retention Rate =

Answer 4

(Net Income - Dividends - Share Buybacks) / Net Income

Question 5

Fundamental Growth =

Answer 5

Return on Equity x Retention Rate

Question 6

Fundamental Growth =

Answer 6

Return on Equity x Retention Rate

Question 7

Invested Capital (Financing Approach) =

Answer 7

Book Value of Equity + Book Value of Debt - Cash

Question 8

Invested Capital (Operating Approach) =

Answer 8

Net Working Capital + PP&E + Goodwill & Intangibles

Question 9

Reinvestment Rate =

Answer 9

(Net capital expenditures + Change in non-cash working capital ) / NOPAT.

Net Capex = (Capital Expenditures - Depreciation)

Question 10

sales-to-capital ratio (S/C) =

Answer 10

Revenue / Invested Capital

Invested Capital = ( Book Value of Equity + Book Value of Debt - Cash)

Question 11

Terminal Value in year n =

Answer 11

(FCFFn (1+g)) / (r-g)

FCFF = Free Cash Flow to the Firm
g = Growth Rate
r = Cost of Capital

Question 12

Reinvestment Rate =

Answer 12

Growth Rate / ROIC

Question 13

WACC =

Answer 13

(((E / (D+E)) x re) + ((( D / (D+E)) x rd x (1-T)))

Question 14

Growth =

Answer 14

(EV/BV) - 1

EV= Ending Value
BV= Beginning Value

Question 15

Terminal value in Year n =

Answer 15

(NOPATn x (1+g) x (1-(g/ROIC))) / (r-g)

g = Growth rate
ROIC = Return on Invested Capital
R = Cost of Capital

Question 16

Present Value =

Answer 16

FV / (1+r)^ n

FV= Future Value
PV= Present Value
r = Discount rate
n = Number of Periods

Question 17

Re =

Answer 17

Rrf + ( B x ( Rm - Rrf)

Re= Cost of Equity
Rrf = Risk-Free Rate
B= Beta of the asset
Rm = Market rate of return

Question 18

Market Risk Premium =

Answer 18

Expected Return on Stocks - Expected Return on Risk-Free Bonds

Question 19

Equity Risk Premium =

Answer 19

Mature Market Premium + Country Risk Premium

Question 20

Degree in Operating Leverage =

Answer 20

% Change in Operating Income / % Change in Revenue

Question 21

Unlevered Beta =

Answer 21

LB / ( 1 + ((1-T) x (D/E)) )

LB = Levered Beta
T = Tax rate
D = Market Value of Debt
E = Market Value of Equity

Question 22

Levered Beta =

Answer 22

UL x ( 1 + ((1-T) x (D/E)) )

UL = Unlevered Beta
T = Tax Rate
D = Market Value of Debt
E = Market Value of Equity

Question 23

Market Value of Debt =

Answer 23

C x [ ( 1 - (1/((1+ Rd) ^ n))) / Rd ]+ [D / ( 1+Rd)^n]

C = Interest Expenses
Rd= Pre-Tax Cost of Debt
D = Book Value of Debt
n = Number of Years till Maturity

Question 24

Pre-Tax Cost of Debt =

Answer 24

Risk-Free Rate + Credit Spread

Question 25

Interest Coverage Ratio =

Answer 25

Operating Income / Interest Expense

Question 26

After-Tax Cost of Debt =

Answer 26

Pre-Tax Cost of Debt x (1 - Tax Rate)