Formulas Flashcards
Conversion Premium / Discount Formula
((Market price of convertible stock / Conversion ratio x market price of ordinary shares) -1) x 100
How to calculate interest yield
coupon / clean price x 100
How to calculate modified duration
Macauley’s duration / 1 + Gross redemption yield
Rental property yield formula
rent / purchase cost
How to calculate futures
Portfolio value / (FTSE 100 futures contract value x 10)
Sharpe ratio formula
Return - Risk free return / standard deviation
Information ratio formula
Return - benchmark return / tracking error
EPS formula
net profit attributable to ordinary shareholders / number of ordinary shares in issue
What does earnings per share represent
It represents the amount in pence that the company has earned during the year for each ordinary share
Dividend yield formula
dividend per share / share price
Dividend cover formula
EPS / dividend per share
If a dividend cover is high, what does this suggest?
The higher the figure the more likely the company can maintain the existing dividend if profits fall in the future. A high dividend cover suggests that the company is retaining a lot of its earnings for reinvestment
P/E formula
Share price / Earnings per share
What is P/E ratio
A P/e ratio gives an indication of the number of years that it would take at the current EPS to repay the share price (ignoring the time value of money).
Can therefore provide an indication of value of an equity
How to calculate NAV
net assets attributable to ordinary shareholders / number of ordinary shares in issue
Future value formula
PV (1+r)n
How to calculate compound rate of interest
1) Future value / initial investment
2) to the square root of how many years
3) - 1 x 100
Annual equivalent rate formula
(1+ r/n)n - 1
How to calculate amount that needs to be invested now
Future value / (1 + r)n
Accumulating and discounting regular savings formula
1) Present value times by
2) (1+r)n-1 / r
Real rate of return formula
Nominal return - inflation
Undiluted NAV formula
Net assets / Number of ordinary shares in issue
Top slicing relief process
1) Work out what amount of the gain falls in each tax bracket and work out the total tax
2) Work out the tax already paid within the fund, so 20% of the gain and deduct this off total liability
3) find the annual equivalent of the gain by dividing total gain by years
4) Work out the total tax now due on this top slice, also take into account tax paid on top slice
5) deduct step 4 from step 2
Holding period return
D + V1 - V0 / V0
Relative return calculation
Portfolio return - benchmark return
What is gearing ratio
Long term debt + preference shares / ordinary shareholder funds x 100
Liquidity ratio
current assets - stock / liabilities
Operating margin profit
profit before interest and tax / sales x 100
Net profit margin
profit after tax and interest / sales x 100
Interest cover
Profit before interest and tax / gross interest payable
Working capital ratio
current assets / current liabilities
Debtor turnover
sales / debtors
Stock turnover
cost of sales / stock
Working capital formula
assets - liabilities
Creditor turnover
cost of sales / trade creditors
Dividend discount model
dividend / return on equity
Gordon’s growth model
Dividend / (return required - dividend growth)
Pay out ratio
Dividend per share / EPS
Explain purpose of pay out ratio
determines sustainability of a companies dividend payment
dividends paid to shareholders relative to to EPS
