Section A-C Flashcards
Liquidity
Net Working Capital
Total Current Assets - Total Current Liabilities
Liquidity
Current Ratio
Current Assets / Current Liabilities
Liquidity
Quick/Acid Ratio
(Cash and Cash Equivalents + Marketable Securities + Net Accounts Receivable) / Current Liabilities
Liquidity
Cash Ratio
(Cash and Cash Equivalents + Marketable Securities) / Current Liabilities
Liquidity
Cash Flow Ratio
Operating Cash Flow / Period End Current Liabilities
Liquidity
Net Working Capital Ratio
Net Working Capital / Total Assets
Leverage
Financial Leverage Ratio
Total Assets / Total Equity
Leverage
Degree of Financial Leverage
% Change in Net Income / % Change in EBIT
or
EBIT / EBT
Leverage
Degree of Operating Leverage
% Change in EBIT going forward / % change in Sales going forward
or
Contribution Margin / EBIT
Leverage
Degree of Total Leverage
% Change in Net Income / % Change in Sales
or
Contribution Marign / EBT
Capital Structure and Solvency
Debt to Equity Ratio
Total Liabilities / Total Equity
Capital Structure and Solvency
Long-Term Debt to Equity Ratio
(Total Debt - Current Liabilities) / Total Equity
Capital Structure and Solvency
Debt to Total Assets Ratio
Total Liabilities / Total Assets
Earnings Coverage
Interest Coverage (Times Interest Earned)
EBIT / Interest Expense
Earnings Coverage
Fixed Charge Coverage (Earnings to Fixed Charges)
(EBIT + Operating Lease pmts) / Fixed Charges (required interest and principal pmts on loans and capital leases, operating lease pmts)
Earnings Coverage
Cash Flow to Fixed Charges
Adjusted Operating Cash Flow (cash from operations + fixed charges [interest exp. and operating lease pmts]) / Fixed Charges (required interest and principal pmts on loans and capital leases, operating lease pmts)
Activity
Accounts Receivable Turnover Ratio
Net Annual Credit Sales / Average Gross Accounts Receivable
Activity
Days Sales in Receivables (Average Collection Period)
365 / Accounts Receivable Turnover
Activity
Inventory Turnover Ratio
Annual COGS / Average Inventory
Activity
Days Sales in Inventory
365 / Inventory Turnover Ratio
Activity
Accounts Payable Turnover Ratio
Annual Credit Purchases / Average Accounts Payable
Activity
Days Purchases in Accounts Payable
365 / Accounts Payable Turnover Ratio
Activity
Operating Cycle
Days Sales in Receivables + Days Sales in Inventory
Activity
Cash Cycle
Operating Cycle - Days Purchases in Accounts Payable
Activity
Total Asset Turnover Ratio
Sales / Average Total Assets
Activity
Fixed Asset Turnover Ratio
Sales / Average Net Plant, Property, and Equipment
Profitability
Gross Profit Margin
Gross Profit / Net Sales
Profitability
Operating Profit Margin
Operating Income / Net Sales
Profitability
Net Profit Margin (Profit Margin on Sales)
Net Income / Net Sales
Profitability
EBITDA Margin
EBITDA / Net Sales
Return on Invested Capital
Return on Assets (ROA)
Net Income / Average Total Assets
Return on Invested Capital
Return on Equity (ROE)
Net Income / Average Total Equity
Return on Invested Capital
Return on Common Equity (ROCE)
(Net Income - Preferred Dividends) / Average Common Equity
Market
Book Value per Share
(Total Stockholders’ Equity - Preferred Equity) / No. of Common Shares Outstanding at Balance Sheet Date
Market
Market-to-Book Ratio
Market Price per Share / Book Value per Share
Market
Basic Earnings Per Share (BEPS)
Income Available to Common Shareholders (IAC) / Weighted Average No. of Common Shares Outstanding (WANCSO)
Market
Diluted Earnings Per Share (DEPS)
Adjusted Income Available to Common Shareholders / Weighted Average No. of Common and Potential Common Shares Outstanding
Market
Price/Earnings Ratio or P/E Ratio
Market Price per Share / Basic Earnings Per Share (BEPS)
Market
Price / EBITDA Ratio
Market Price per Share / EBITDA per Share
Market
Earnings Yield
Basic Earnings per Share (BEPS annual) / Current Market Price per Common Share
Market
Dividend Yield
Annual Dividends per Common Share / Current Market Price per Share
Market
Dividend Payout Ratio
Total Common Dividends (annual) / Income Available to Common Shareholders (IAC)
Market
Shareholder Return
(Ending Stock Price - Beginning Stock Price + Annual Dividends Per Share) / Beginning Stock Price
Other
Sustainable Growth Rate
Return On Common Equity (ROCE) x (1 - Dividend Payout Ratio)
DuPont Analysis
ROA
(Net Income / Sales ) x (Sales / Average Total Assets) = Net Income / Total Assets = ROA
DuPont Analysis
ROE
(Net Income / Sales ) x (Sales / AverageTotal Assets) x (Average Total Assets / Average Total Equity) = ROE
ROE is affected by three things
1) Operating Efficiency - Net Profit Margin
2) Asset use Efficiency - Total Asset Turnover
3) Financial Leverage - Financial Leverage Ratio
CAPM
Capital Asset Pricing Model
R = Rf + B(Rm - Rf)
Real Rate
[(1 + Nominal Rate) / (1 + Inflation Rate)] - 1
Duration
The sum of the Proportion of Present Value of cash flow x Time (number of years)
Modified Duration
Duration / (1 + Yield to Maturity)
Answer means a 1% change in YTM will change the bond’s price by the modified duration percentage calculate
Zero Growth Dividend Model
P0 = Annual Dividend / Investors’ Required Rate of Return
Dividend Growth Model
P0 = D1 / (R - g)
Dividend Growth Model + Expected Capital Gain
P0 = (D1 + P1) / (1 + R)
Stock w/o Dividend
P0 = EPS1 / (R - g)
Valuing Stock - Rights-On
Vr = (Po - Pn) / (r + 1)
Valuing Stock - Ex-Rights
(Market value of stock, ex-rights - Subscription price) / Number of rights needed to buy one new share
Option Valuation
Total option premium = Intrinsic value + Extrinsic Value (Time Value)
Put-Call Parity Theorem
Call Premium + PV of Exercise Price = Put Premium + Stock Price
or
C + X/(1+Rf)T = P + S0
WACC
Weighted average cost of capital according to the percentage each component represents in the firms capital structure at market values
Cost of Debt
Cd = C(1-t)
Where C = Interest expense / cash received from sale of debt
Cost of Preferred Stock
Existing: Annual dividends / Current market value of preferred stock
Newly-Issued: Cnp = Annual dividends / Net proceeds of issue
Cost of Common Equity
Existing / Retained Earnings
Cre = (D1 / P0) + g
or
CAPM = Rf + B(Rm - Rf)
Cost of New Common Equity
Cns = (D1 / Net proceeds of the issue) + g
Breakpoint
Point where marginal cost of capital changes
Breakpoint = Limit / Proportion of Total Capital
Cost of not taking cash discount (Opportunity cost)
Cost = [360 / (Total period for pmt - Period of discounted pmt)] x [Discount % / (100% - Discount %)]
T-Bill Effective Interest Rate
(Interest earned / Discounted basis) x (360 / Days to Maturity)
Baumol Cash Management Model
OC = (2bT / i)^1/2
Economic Order Quantity (EOQ)
EOQ = (2aD / k)^1/2
Effective Interest Rate (Compensating Balances)
Annualized Net interest cost / Effective Cash Received
Effective Rate of Discounted Interest
Interest / (Principal amount - interest withheld)
Free Cash Flow
EBIT(1-tax rate) - Capital Expenditures - Depreciation +/-Change in Non-Cash Working Capital
PV of Cash Flows in Perpetuity at Horizon Date
Expected Free Cash Flow of Next Year / (Cost of Capital from CAPM - Expected Growth Rate
Growth Rate
Reinvestment Rate x Return on Capital Invested
or
(Capital Expenditures - Depreciation +/-Change in Non-Cash WC) / Total Assets
Reinvestment Rate
(Capital Expenditures - Depreciation +/-Change in Non-Cash WC) / EBIT(1-tax rate
Return on Capital Invested
EBIT(1-tax rate) / Total Assets
Breakeven in Units
Total Fixed Costs / Unit Contribution Margin
Breakeven in Revenue
Total fixed costs / Contribution margin ratio
Price Elasticity of Demand - Midpoint Method
Ed = {[Q2-Q1] / [(Q2+Q1) / 2]} / [P2-P1] / [(P2+P1) / 2]}
Price Elasticity of Demand - Percentage Method
Ed = Change in Quantity / %Change in Price
Depreciation Tax Shield
Full cost of asset x Annual depreciation rate x Tax Rate
