Formulas and Ratios Flashcards
V = D1 / (r-g)
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
r = D1 / P + g
r = expected rate of return
D1 = next year’s dividend
g = div growth rate
COVij=(ρij)(σi)(σj)
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
σp=√[(Wi)^2 (σ1)^2+(Wj)^2 (σj)^2 + (2WiWjCOVij)]
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’
βi=(COVim)/(σm)^2=(Pim)(σi)/(σm)
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
Current Ratio
Current Assets / Current Liabilities
Quick Ratio
(Current Assets - Inventories) / Current Liabilities
Working Capital
Current Assets - Current Liabilities
Inventory Turnover
COGS / Avg. Inventory
Days to Sell Inventory
365 / Inventory Turnover
Acct’s Receivable Turnover
Sales (credit) / Avg. Accounts Rec.
Receivable Collection Period
365 / Accounts Rec. Turnover
Gross Profit Margin
Gross Profit / Sales
Operating Profit Margin
Operating Income / Revenue
ROA
Return on Assets = EAT / Total Assets
EAT
Earnings after tax
ROE
Return on Equity = EAT / Equity
Debt to Equity
(Total long - term debt) / Equity
Times Interest Earned
EBIT / Interest Expense
EBIT
Earnings before interest and tax
Debt Ratio
Total Debt / Total Assets
Liquidity Ratio
Used to determine the ability to meet short-term obligations
Activity Ratio
Used to determine the relative efficiency of financial management
Profitability Ratio
Used to measure relative profitability, how much money is output compared to inputs
Debt Raio
Used to determine the ability to meet long-term obligations
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
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
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
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
Tp = (rp − rf) / βp
Tp = Treynor Index
rp = return of the portfolio
rf = risk free rate of return
βp = beta of the portfolio
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 %)
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
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
EAR = (1 + i/n)^n − 1
EAR = Effective Annual Rate
i = interest rate
n = number of periods
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)
AM = (a1+a2+a3+…+an) / n
AM = Arithmetic Mean, or the average
a = rate of return for given period
n = number of periods
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
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
√[(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
Front End PITI
PITI / Gross Income
28%
Back End PITI
(PITI + Other Debt) / Gross Income
36%
