Formulas and Ratios Flashcards

1
Q

V = D1 / (r-g)

A

V = value of a dividend-paying security with constant dividend growth
D1 = next year’s dividend
r = req rate of return
g = div growth rate

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2
Q

r = D1 / P + g

A

r = expected rate of return
D1 = next year’s dividend
g = div growth rate

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3
Q

COVij=(ρij)(σi)(σj)

A

COVij = a measurement of the behavior of one security as a direct result of another
ρij = correlation between securities i and j
σi = std dev of security i
σj = std dev of security j

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4
Q

σp=√[(Wi)^2 (σ1)^2+(Wj)^2 (σj)^2 + (2WiWjCOVij)]

A

σp = standard dev of a 2 asset portfolio
Wi = weight of stock ‘i’
Wj = weight of stock ‘j’
σi = standard deviation of stock ‘i’
σj = standard deviation of stock ‘j’
COVij = covariance between ‘i’ and ‘j’

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5
Q

βi=(COVim)/(σm)^2=(Pim)(σi)/(σm)

A

βi = beta, provides risk as a measure of volatility relative to that of the market
σi = standard deviation of the individual security
ρim= correlation between an individual security and the market
COVim= covariance between an individual security and the market
σm = standard deviation of the market

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6
Q

Current Ratio

A

Current Assets / Current Liabilities

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7
Q

Quick Ratio

A

(Current Assets - Inventories) / Current Liabilities

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8
Q

Working Capital

A

Current Assets - Current Liabilities

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9
Q

Inventory Turnover

A

COGS / Avg. Inventory

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10
Q

Days to Sell Inventory

A

365 / Inventory Turnover

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11
Q

Acct’s Receivable Turnover

A

Sales (credit) / Avg. Accounts Rec.

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12
Q

Receivable Collection Period

A

365 / Accounts Rec. Turnover

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13
Q

Gross Profit Margin

A

Gross Profit / Sales

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14
Q

Operating Profit Margin

A

Operating Income / Revenue

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15
Q

ROA

A

Return on Assets = EAT / Total Assets

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16
Q

EAT

A

Earnings after tax

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17
Q

ROE

A

Return on Equity = EAT / Equity

18
Q

Debt to Equity

A

(Total long - term debt) / Equity

19
Q

Times Interest Earned

A

EBIT / Interest Expense

20
Q

EBIT

A

Earnings before interest and tax

21
Q

Debt Ratio

A

Total Debt / Total Assets

22
Q

Liquidity Ratio

A

Used to determine the ability to meet short-term obligations

23
Q

Activity Ratio

A

Used to determine the relative efficiency of financial management

24
Q

Profitability Ratio

A

Used to measure relative profitability, how much money is output compared to inputs

25
Debt Raio
Used to determine the ability to meet long-term obligations
26
σr = √[(∑(rt−rbar)^2) / n]
σr = standard deviation (population) of results from the expected return Σ = summation of all terms n = number of periods being considered rt = actual return rbar = average return
27
Sr = √ [(∑(rt−rbar)^2) / (n−1)]
Sr = standard deviation (sample) of results from the expected return Σ = summation of all terms n = number of periods being considered rt = actual return rbar = average return
28
ri = rf + (rm−rf)βi
ri = CAPM - Capital Asset Pricing Model, used to determine a theoretically appropriate required rate of return of an asset rf = risk-free rate (T-Bill) rm = return of the market βi = beta of the security
29
αp = rp − [rf + (rm−rf)βp]
αp = Jensen's Performance Index, Alpha, measures the difference of return from the amount required by investors rp = return of the portfolio rf = risk-free rate of return rm = return of the market βp = Beta of the portfolio
30
Tp = (rp − rf) / βp
Tp = Treynor Index rp = return of the portfolio rf = risk free rate of return βp = beta of the portfolio
31
D = (1+y)/y − [(1+y) + t(c−y)] / [c[(1+y)^t−1]+y]
Duration = the length of time the discounted cash flow of a bond remains outstanding c = rate of interest paid on the coupon t = number of periods to maturity y = Yield to Maturity (as a %)
32
ΔP/P = −D[Δy/(1+y)]
ΔP = the dollar change in price P = price of a bond ΔP/P= % price change of bond (-D) = the duration in terms of years used as a negative value ∆y = the % change in interest rates. If they go down this number should be negative 1+y = 1 + yield to maturity
33
IR = (Rp−RB) / σA
IR = Information Ratio, which measures the return above a benchmark divided by std. dev. RP = return of a portfolio RB = return of a benchmark σA = tracking error of active return
34
EAR = (1 + i/n)^n − 1
EAR = Effective Annual Rate i = interest rate n = number of periods
35
TEY = r / (1−t)
TEY = Tax Equivalent Yield, which provides the return that is required on a taxable investment to make it equal to the return on a tax-exempt investment r = nominal rate of return t = investor’s marginal tax rate (as a decimal)
36
AM = (a1+a2+a3+...+an) / n
AM = Arithmetic Mean, or the average a = rate of return for given period n = number of periods
37
SP = (rp−rf) / σp
Sp = Sharpe Index / Ratio, which measures the risk-adjusted performance of a portfolio in terms of std dev rp = return of the portfolio rf = risk free rate of return σp = standard deviation of the portfolio being measured
38
HPR = [(1+r1)×(1+r2)×...(1+rn)]−1
HPR = Holding period return, which provides the total return from holding an asset over a period of time r = rate of return for given period n = number of periods
39
√[(1+r1) × (1+r2) × ...(1+rn)] − 1
Geometric Mean = the central number in a geometric progression, also calculable as the nth root of a product of n number r = rate of return for given period n = rate of return for given period
40
Front End PITI
PITI / Gross Income 28%
41
Back End PITI
(PITI + Other Debt) / Gross Income 36%