Formulas & Methods Flashcards
WACC
WACC = WACC Equity + WACC Debt After Tax
WACC Equity
WACC Equity = Cost of Equity % * Equity %
WACC Debt After Tax
WACC Debt = Cost of Debt % * Debt % * (1 - Tax %)
Debt to Equity
Debt to Equity = Debt / Equity
CAPM
Cost of Equity = Common Stock
CAPM = Risk Free Rate + (Beta * (Market Rate - Risk Free Rate)
Discounted Cash Flows (DCF)
Cost of Equity = Common Stock
DCF = (Dividend / Price of Stock) + Growth Rate
Bond Yield Plus Risk Premium
Cost of Equity = Common Stock
BYPRP = Before Tax Cost of Debt + Risk Premium
Cost of Preferred Stock
Cost of Equity = Preferred Stock
Cost of Preferred Stock = Dividends / Net Proceeds
Cost of Debt
Cost of Debt = (Interest Expense / Total Debt) * (1 - Tax %)
Return on Sales
Return on Sales = Op Profit / Sales (net)
Return on Equity
Return on Equity = Net Income / Avg Equity
Return on Assets
Return on Assets = Net Income / Avg Assets
Return on Investment
Return on Investment = Net Income / Avg Invested Capital
Gross Profit Margin
Gross Profit Margin = Gross Profit / Revenue
Operating Profit Margin
Operating Profit Margin = Operating Profit / Revenue
Net Profit Margin
Net Profit Margin = Net Income / Revenue
EBIDTA Margin
EBITDA Margin = EBITDA / Revenue
Residual Income
Residual Income = Net Income - (Required Return * Equity)
For Required Return = The question may say WACC, Cost of Equity or Hurdle Rate.
For Equity = The question may say NBV or Investment.
Method =
1. Calculate Actual Return (Equity * Required Return Rate)
2. Residual Income = Net Income - Actual Return
Operating Leverage
Operating Leverage = Fixed Expenses / Total Expenses
Financial Leverage
Financial Leverage = Avg Assets / Avg Equity
Debt Ratio
Debt Ratio = Total Debt / Total Assets
Debt to Total Capital
Debt to Total Capital = Total Debt / Total Capital
Times interest Earned
AKA Interest Coverage Ratio!
Times Interest Earned = EBIT / Interest Expense
Zero Growth Model or Perpetuitites
Zero Growth Model or Perpetuities = Dividends / Required Return
*Absolute model that tells me the price of stock
Dividend Discount Model
Gordon Growth Model = Dividends * Growth Rate / (Required Return - Growth Rate)
*Absolute model that tells me the price of stock
Discounted Cash Flows
*Absolute model that tells me the price of stock
Discounted Cash Flows = Valuation on DCF / Outstanding shares
Price to Earnings (PE)
*Tells me how many times I’m paying for the stock
PE = FMV / EPS
Price to Earnings Growth (PEG)
*Tells me how many times I’m paying for the stock but considers company growth
PEG = PE / Expected Growth Rate
Price to Sales (PS)
PS = FMV / Expected Sales per Share
*Tells me how sales compare to the mkt price
Price to Cash Flows (PCF)
PCF = FMV / CF
As an investor, I want it to be high.
Price to Book (PB)
PB = FMV / NBV of Equity
Net Present Value
NPV = PV of Future CF - Upfront Investment
Profitability Index
Profitability Index = PV of Future CF / Upfront Investment
Payback Period
Payback Period = Initial Investment / Annual CF
*For partial years :
Cash needed / Period CF
Discounted Payback Period
Discounted Payback Period = Initial Investment / Discounted Annual CF
*For partial years :
Cash needed / Period CF
Economic Value Added
EVA = NOPAT - Required Return*
Required Return = WACC * Op Assets
Internal Rate of Return
IRR = When NPV is zero.
Must be > Required Return
Working Capital Turnover
WCTO = Sales, net / Avg Working Cap
APR of Quick Payment Discount
APR = (360 / (Pay Period - Disc Period)) * (Disc% / 1 - Disc %)
Economic Order Quantity
EOQ = SQRT (2SO / C)
*Tells me the optimal order size
S = Annual Sales
O = Cost per PO
C = Carrying costs per unit
Reorder Point
Reorder Point = Safety Stock + (Lead Time * Sales during Lead Time)
- Safety Stock tells me the amt of inventory I need to have to not sell out, and Reorder Point tells me when I need to reorder to avoid loss of being sold out.
- Lead time is the amount required to deliver goods to costumers.
Cost of Goods Manufactured
Total Mfg Costs
(+) Beg WIP
(-) End WIP
(=) COGM
COGS
COGM
(+) Beg FG
(-) End FG
(=) COGS
Absorption Costing
Revenues
(-) COGS
(=) Gross Profit
(-) Variable SG&A
(-) Fixed SG&A
(=) Net Income
- Assigns fixed and variable DM, DL, and a portion of OH to inventory.
** Split between product and period costs.
*** GAAP
Variable Costing
Revenues
(-) Variable COGS
(-) Variable SG&A
(=) Contribution Margin
(-) Fixed OH
(-) Fixed SG&A
(=) Net Income
- Assigns variable DM, DL, OH to inventory.
** Applies only to product costs.
*** Fixed OH is period cost.
** NOT GAAP
Traditional Costing
OH Cost = OH rate * Cost Driver for Product
OH Rate = Total Costs / Cost Driver
Activity Based Costing
Joint Product Costing
It’s just an allocation, based on whatever the MCQ/SIM says.
DM Price Variance
DM Price Variance = Actual Units * (Budg Price - Actual Price)
DM Usage Variance
DM Usage Variance = Budg Cost * (Budg Units - Actual Units)
DL Rate Variance
DL Rate Variance = Actual Hrs * (Budg Rate - Actual Rate)
DL Efficiency Variance
DL Efficiency Variance = (Actual Hrs * Std Rate) - (Std Hrs * Std Rate)
Variable Spending OH Variance
Variable Spending OH Variance = Actual Hrs * (Budg Rate - Actual Rate)
Variable Efficiency OH Variance
Variable Efficiency OH Variance = Budg Rate * (Budg Hrs - Actual Hrs)
Fixed Spending OH Variance
Fixed Spending OH Variance = (Actual Hrs * Actual Rate) - (Actual Hrs * Std Rate)
Fixed Efficiency OH Variance
Fixed Efficiency OH Variance = (Std Hrs * Std Rate) - (Actual Hrs * Std Rate)
Sales Volume Variance
Sales Volume Variance = Contribution Margin * (Actual Units Sold - Budg Units Sold)
Sales Price Variance
Sales Price Variance = Actual Units * (Budg Units - Actual Units)
Make or Buy?
- Compare what it would cost you to have it made + Fixed Costs to your n normal costs.
- If you have income, net it against the additional cost.
Special Order?
- Ck if we have capacity = Total Capacity - Current Production
- If we have capacity, then add DM + DL + Other costs, except Fixed.
Production Budget
Budg Sales or Planned Production
(+) Desired End Inventory
(-) Beg Inventory
(=) Production Budget
DM Usage Budget
Beg Inv
(+) Purchases
(-) End Inventory
(=) DM Usage Budget
Same as COGS formula
DL Budget
Production Budget or Sales Budget
() Hrs per unit
() Hrly Rate
(=) Total Wages
OH Budget
Same as COGM!
Cash Budget
Beg Cash
(+) Cash Collections
(-) Cash Payments
(-) Cash Required
(=) End Cash
Financing Budget
End Cash
(+) Loans
(-) Loan Repayments
(-) Interest Payments
(=) Financing Budget
Coefficient of determination
r^2
Coefficient of Correlation
r
-1.0 = Perfect Inverse correlation \ >units >cost
0.0 = No correlation
1.0 = Perfect correlation / >units <cost
Perfectly correlated = //
Positively correlated |/
Perfectly negatively correlated = X Least Risk
Negatively correlated = |\
Regression Model
y = a + Bx
y is Total Cost or Dependent Variable
a is fixed cost
B is variable cost
x is total activity or Independent Variable
Sensitivity Analysis
Compare Overestimated (<100%), projected, and overestimated (>100%)
Scenario Analysis
Sum of likelihoods * regressions or progressions.
Breakeven Point in Units
Total Fixed Costs / Contribution Margin per Unit
Breakeven Point in Sales
Selling Price per Unit * Breakeven Point in Units
Pretax Profit
Desired After Tax Profit / (1-Tax)
Sales Units Needed to Achieve Target Profit
(Fixed Costs + Pretax Profit) / Contribution Margin per Unit
Margin of Safety
Sales
(-) Breakeven Sales
Margin of Safety Ratio
Margin of Safety / Total Sales
Target Cost
Planned Selling Price - Desired Profit
Expected Monetary Value
Risk Cost * Risk Probability %
Interest Rate of a T-Bill
RF rate + Inflation Premium
Real GDP
(Nominal GDP / GDP Deflator) * 100
*** For YoY Change = (Real GDP PY / Real GDP CY) - 1
Multiplier Effect
1 / (Marginal Propensity to Save)
Price Elasticity of Demand
% Change in Quantity Demanded / % Change in the Price Point
Price Elasticity of Supply
% Change in Quantity Supplied / % Change in the Price Point
Cross Elasticity of Demand/Supply
% Change in Qty Demanded/Supplied of Prod A / % Change in Price of Prod B
Income Elasticity of Demand
% Change in Qty Demanded / % Change in Income Level
Partial Productivity Ratio
Qty of Output / Qty of Input
How to get Valuation of Equity?
PE Ratio * Net Income
Dividend Discount Model
D1 / R - G
Total Factor Productivity
Qty of Output / Cost of Input
Average AR
Annual Sales / (360 / Avg Collection Period)
