Formulas Flashcards
Balance Sheet
Total Assets = Total Liabilities + Shareholder Equity
Working Capital
Current Assets – Current Liabilities
Current Ratio
Current Assets / Current Liabilities
Quick Ratio
(Cash + Cash Equv + Accts Receivable) / Current Liabilities
Book Value
Total Assets –Total Liabilities
Tangible Book Value
Total Assets – Total Liabilities – Intangible Assets – Goodwill
Debt to Total Capital Ratio
Total Debt / Total Capital –use either book or market value
Debt to Equity Ratio
Total Debt / Total Shareholder Equity
Common Shareholder Equity
Total Shareholder Equity – Preferred Shareholder Equity
Days Sales Outstanding
(Accts Receivable/Total Credit Sales) x No of Days
Interest Coverage Ratio
EBITDA / Interest Expense
Debt to EBITDA Ratio
(Short and Long Term Debt) / EBITDA
Accounts Receivable Turnover
Sales on Credit (current year) / Average Acct Receivable
Inventory Turnover Rate
COGS / Average Inventory
Operating Income (EBIT)
Operating profit +/– other income or expenses
Net income
Operating profit – interest – taxes
Earnings Available to Common
Net income – preferred dividends
Basic EPS
Earnings Avail to Common / Avge Common Shares Outstanding
net income – preferred) / (common – treasury
Return on Equity
Earnings Avail to Common / Avge Common Shareholder Equity
EBITDA Margin
EBITDA / Sales or Revenue
Return on Assets
Net Income / Average Assets
PEG (P/E to Growth) Ratio
P/E Ratio / Annual Growth Rate
Dividend Yield
Annual Dividend / Market Price of Common
Dividend Payout Ratio
Annual Dividend / EPS
Earnings Yield
EPS / Market Price of Common
Price to Book Ratio
Market Price of Common / Book Value
Price to FCF
Market Price of Common / FCF per share
Free Cash Flow Yield
FCF per share / Market Price of Common
Price to Sales Ratio
Market Price of Common / Sales or Revenue
Enterprise Value
Market Cap Common and Pref + Debt + Capital Leases + Minority Interests – cash and equivalents
After Tax Cost of Debt (WACC)
Pretax Cost x (1 – Tax Rate)
Cost of Equity (CAPM) Capital Asset Pricing Model
Risk Free RoR + ß (Market RoR – Risk Free RoR)
Risk Premium
Market RoR – Risk Free RoR
Gordon Growth Model
Value of Company Share Price = Next period dividend / (equity cost of capital minus growth rate)
WACC
(Cost of Equity x Weight of Equity) + (Cost of Debt x Weight of Debt)
FCFF (free cash flow to firm)
EBIT x (1 – Tax Rate) + DepAmort – CapEx +/– change to working capital
FCFE
Net income + DepAmort – CapEx +/– change to working capital
Financial metric for financial service companies:
Price / Book
Financial metric for REITs
Price / Funds from Operations
Financial metric for Cyclical Companies
Normalised or relative P/E
Financial metric for companies with negative earnings or retail companies with same leverage
Price / Sales ratio
Financial metric for companies with negative earnings
Earnings yield
Financial metric for basic/heavy industries
EV / EBITDA
Financial metric for retail companies with different leverage
EV / Sales
Financial metric for companies with high P/E ratios
PEG ratio
Which tax rate should be used in adjustment calculations?
Always use marginal rather than the effective rate – it’s more conservative
Formula for current target share price?
FCFE / (Expected RoR – Expected Growth Rate)
Comparisons for price of IPO or acquisition?
IPO: comparable company, sum of parts, DCF
Acq: comparable transaction
Estimate CAGR
Calculate growth from every period, compute average, test a value that’s slightly lower
Calculation of growth rate
Use Rule of 72 – divide 72 by no. of years for funds to double to get annual growth rate
Simple present value under DCF
Period 1 earnings / (1+Wacc) PLUS
Period n earnings / (1+Wacc)^n PLUS
Terminal value / same as final period
Calculate Projected Growth Rate:
(NTM Net Income / LTM Net Income) – 1
If there’s no debt, what’s the relationship between FCFF and FCFE?
They’re the same
P/E ration is based on adjusted or unadjusted EPS?
Adjusted – extraordinary charges are added back in
Treasury Method of adjusting EV
Assume valuable options are exercised, company uses proceeds to purchase shares in open market, issues or uses Treasury stock to make up the balance
Transaction multiple on EBITDA gives…
Enterprise value – subtract the debt and add the cash to get to equity value
Relationship of Operating Income to EBITDA?
Operating Income has depreciation taken out, so add it back in, along with amortization of intangibles.
Do NOT add in amortization of bond premiums or deferred financing fees
Growth rate (if you have PEG)?
(P/E) / PEG
Crucial factor in calculating FCF?
Remember changes in working capital (current assets minus current liabilities)
Treatment of Preferred when calculating EV?
Use market value
How do you calculate how much debt a company can take on?
Do a DCF on the cash flows for the period, using after-tax cost of debt as the discount rate
What does deteriorating working capital mean?
An increase in non-cash working capital, which ties up cash, causing cashflows to reduce, and under DCF, reducing valuation
Levered beta
Levered beta = unlevered beta x (1 + [(1 - tax rate) x (debt/equity)])
What does a reduction in current assets do to operating cashflows?
Increases them
Stable growth FCFF model?
FCFF / (WACC – growth rate)
Return on Common Equity?
(Net Income - Preferred Dividends) / Common Stockholders’ Equity
Goodwill created?
Offer value less net tangible assets
Implied value?
Expected dividend / (cost of capital minus growth rate)
