Formula Flashcards
Calculate “Net Initial Outflow”
Invoice $ + Shipping $ + Installation$ (outflow)
+ Increase in WC (outflow)
- Cash Proceeds on Sale of old asset (net of tax) (inflow)
__________________________________________
= Net initial outflow
Net Present Value Calculation Steps
Step 1: Calculate after tax cash flows
Step 2: Add depreciation benefit
Step 3: Multiply result by appropriate PV of an annuity
Step 4: Subtract initial cash outlfow
Result: Net present value
Profitability Index
PV of net future cash inflow
__________________________
PV of net initial investment
Payback Period
Initial outflow
__________
Annual annuity
TVM is ignored unless discounted cash flows are used to calculate.
DOL (degree operating leverage)
% change in EBIT
_______________
% change in Sales
DFL (degree financial leverage)
% change in EPS
_______________
% change in EBIT
Combined (total) Leverage
= DOL * DFL
= (% change in EPS) / (% change in Sales)
Cost of Debt
interest rate * (1 - tax rate)
Cost of Retained Earnings Methods (3)
- CAPM
- DCF
- BYRP
Calculate Cost of Retained Earnings - CAPM
C = R + B (M- R)
C : cost of equity capital
R : Risk free rate
B : Beta efficiency
M : Market rate of return
Calculate Cost of Retained Earnings - DCF
Cost R = ( Dividend Y1/ Price of stock ) + g
g : constant rate of growth of dividend.
Calculate Cost of Retained Earnings - BYRP
cost RE = pretax cost of debt + Risk premium
Pretax cost of debt : YTM rate
Risk premium = B( Market - Rfr )
Return on Investment (ROI)
Income
________
Investment Capital (average assets)
Return on Assets (ROA)
Net income
__________
Average total assets
Required Return
Investment * Cost of Capital
Residual Income
Net Income - Required return
Economic Value Added
Income after taxes - Required Return
What does the Debt-to-equity ratio tell you?
The lower the ratio, the lower the risk.
total debt/ total shareholders equity
Net Working Capital
CA-CL
Current Ratio
Current Assets
_____________
Current Liabilities
Quick Ratio
Cash + MKT Securities + Receivables
________________________________
Current Liabilities
APR of Quick Payment Discount
[ 360 / (Pay Period - Discount Period)] x [Discount /(100-Discount %)]
Inventory Turnover
COGS
____________
Average Inventory
Inventory Conversion Period
365
_______________
Inventory Turnover
= Avg inventory / (Avg COGS / 365)
A/R Turnover
Sales
__________
Average A/R
A/R Collection Period
365
_____________
A/R Turnover
= Avg AR / (Avg sale per day)
A/P Turnover
COGS
_________
Average A/P
A/P Deferral Period
365
_______
A/P Turnover
= Avg AP / ( COGS per day)
Economic Order Quantity (EOQ)
√((2 x Annual Sales x Order Cost)/(Carrying Cost per Unit))
“2SOC”
Investment Turnover
Sale
______________
Avg Investment
Cash conversion cycle
Inv conversion period + Rec. collection period - Payable deferral period
Reorder point
Safety stock + ( Lead time x sale during lead time)
Risk Premium
Market Rate - Risk Free Rate
EPS
NI / # shares O.S
Debt to Equity Ratio
Total Liabilities / Total SE
Owner’s equity Ratio
SE/ Total Asset
Debt Ratio
TL/TA
Capital turnover
= Annual Sales(revenue ) /Avg.Owner’s Equity
Number of days supply inventory
= 365/ Inventory TO
DuPont Formula
= ROS X Assets TO
Where ROS = Net Sales / Net Income
Assets TO = Sales / Total Assets
Real interest Rate (RIR)
= Nominal interest rate – Inflation Rate
Margin of Safety
MOS ($) = Total sale - BE sale
MOS (%) = MOS $ / Total Sale
Cost of preferred stock
= ($) Outflow / Net inflow
= Dividend / (net proceed - flotation cost)
Profit margin
= Net income / Sale
= ROI / Asset turnover
Times interest earned
= EBIT ** / Interest expense
**Add back depreciation n interest to get to PRE-tax income
Real GDP
= Norminal GDP / GDP deflator x 100
Real GDP per capita
= Real GPD / population
Multiplier effect
= 1/ (1-MPC)
MPC + MPS = 1
Change in GPD = multiplier x change in spending
Inflation rate (%)
= CPI this period - CPI last period / CPI last period
Norminal interest rate
= Real interest rate + Inflation rate
Elasticity of supply & Demand - point method
Ep = change in QD% / Change in P %
= ( Q2 - Q1 / Q1 ) / (P2 - P1) / P1
Elasticity of supply & Demand - midpoint method
= ( Q2 - Q1 / Q1+ Q2 ) / (P2 - P1 / P1 + P2)
Cross elasticity
= % change in # of unit X / % change in price of Y
Positive Px increase and Dy increase : X & Y are substitute
Negative : Px increase and Dy decrease: X & Y are compliment
Income elasticity
= % change in demand / % change in income
Marginal product (Labor)
= change in total product / change in labor
Avg product
AP(L) = TP / L
Avg Fixed cost
AFC = FC / Quantity
Avg Variable cost
AVC = VC / Quantity
Avg total cost
ATC = TC / Q = AFC + AVC
Marginal cost
MC = Change in TC / Change in Quantity
MC depend solely on VC
FC do not influence MC
ARR =
Avg. Annual incremental Revenues – Avg. Annual incremental expenses / Initial (or avg) investment
The formula for developing the overhead is
Estimated total overhead costs/ Estimated activity volume = predetermine rate
Applied overhead = Predetermine overhead rate x actual number of units used ( direct labor hours or machine hours )
APR =
Interest (cost)
APR = ________________________
Principal x Time fraction of year
Effective annual interest rate
= ( 1+ (stated rate/n) )^n - 1
