Financial Statements 3

Question 1

Return on Invested Capital (ROIC) :

Answer 1

(Operating Income x (1-tax rate)) / (BV of Debt + BV of equity - Cash)

BV = Book Value

Question 2

ROE =

Answer 2

Net Income / BV of equity

Question 3

FCFF =

Answer 3

After tax Operating Income -(CAPEX - Depreciation) - Change in non cash working capital

Question 4

Reinvestment rate =

Answer 4

(CAPEX - Depreciation + Change in non cash working capital) / After tax Operating Income

Question 5

FCFF =

Answer 5

After tax Operating Income x (1- Reinvestment rate)

Question 6

Levered Beta =

Answer 6

Unlevered Beta x (1 + ((1-tax rate) x ( Debt/ Market Equity)))

Question 7

Interest Coverage Ratio=

Answer 7

Operating Income / Interest Expense

Question 8

After tax cost of debt =

Answer 8

( Risk free rate + Default spread) x ( 1-marginal tax rate)

Question 9

Terminal value in year n =

Answer 9

(Cash flow in year n + 1) / (discount rate - perpetual growth rate)

Question 10

Reinvestment rate =

Answer 10

Expected growth rate in operating or net income / return on capital or equity

Question 11

Value of Equity =

Answer 11

Expected dividends next year / (Cost of Equity - expected growth rate)

Question 12

PE ratio =

Answer 12

Value of Equity / Net Income

Question 13

PE ratio =

Answer 13

Dividend payout ratio / (Cost of Equity - expected growth rate)

Question 14

PBV ratio=

Answer 14

Value of equity / BV of equity

Question 15

PBV ratio =

Answer 15

(ROE x dividend payout ratio) / (Cost of Equity - expected growth rate)

Question 16

Enterprise value =

Answer 16

Expected FCFF next year / (cost of capital - expected growth rate)

Question 17

Enterprise value =

Answer 17

(EBIT x (1- tax rate) x (1-reinvestment rate)) / (cost of capital - expected growth rate)

Question 18

Enterprise value / sales =

Answer 18

(After tax operating margin x (1- reinvestment rate)) / (cost of capital - expected growth rate)