Introduction to Finance Assorted Formulae BMM7e Chapters 1 to 7

Assets =Liabilities +Stockholders Equity

Measuring Corporate Performance
Performance Measures
Market value added ($ millions) market value of equity book value of equity
Market-to-book ratio market value of equity book value of equity
Profitability Measures
Return on assets (ROA) after-tax operating income/total assets
Return on capital (ROC) after-tax operating income/(long-term debt + equity)
Return on equity (ROE) net income/equity
EVA* ($ millions) after-tax operating income cost of capital capital
Efficiency Measures
Operating profit margin after-tax operating income/sales
Asset turnover sales/total assets at start of year
Fixed-asset turnover sales/fixed assets at start of year
Receivables turnover sales/receivables at start of year
Average collection period (days) receivables at start of year/daily sales
Inventory turnover cost of goods sold/inventory at start of year
Days in inventory inventories at start of year/daily cost of goods sold
Leverage Measures
Long-term debt ratio long-term debt/(long-term debt + equity)
Long-term debt-equity ratio long-term/equity
Total debt ratio total liabilities/total assets
Times interest earned EBIT/interest payments
Cash coverage ratio (EBIT + depreciation)/interest payments
Liquidity Measures
Net working capital to assets net working capital/total assets
Current ratio current assets/current liabilities
Quick ratio
(cash + marketable securities + receivables)/current
liabilities
Cash ratio (cash + marketable securities)/current liabilities
Growth Measures
Payout ratio dividends/earnings
Sustainable growth (1 payout ratio) ROE











Market Value of Equity
Market-to-Book Ratio
Book Value of Equity
=
Enterprise Value Market Value of Equity Debt Cash = +
Market Capitalization Share Price
P / E Ratio
Net Income Earnings per Share
= =
(Benefits) (Costs) = NPV PV PV
(1 ) (1 ) (1 ) (1 )
times
= + + + = +

n
n
FV C r r r C r
n
(1 )
(1 )
= + =
+
n
n
C
PV C r
r
0 0
( )
(1 )
= =
= =
+

N N
n
n n
n n
C
PV PV C
r
( in perpetuity) =
C
PV C
r
(growing perpetuity)

=

C
PV
r g





















Bond Rate of Return =(coupon income +price change) / investment




























1 1
(annuity of for periods with interest rate ) 1
(1 )

=

+

N
PV C N r C
r r
( )
(annuity) V (1 )
1
1 (1 )
(1 )
1
(1 ) 1
= +

= +

+

= +
N
N
N
N
FV P r
C
r
r r
C r
r
1 1
1
( ) (1 )

+
=


+


N
g
PV C
r g r
Equivalent -Period Discount Rate (1 ) 1 = +
n
n r
APR
Interest Rate per Compounding Period
periods / year
=
k
1 1

+ = +


k
APR
EAR
k
1 Growth of Money
Growth in Purchasing Power 1
1 Growth of Prices
+
= + = =
+
r
r
r
i
Coupon Rate Face Value

Number of Coupon Payments per Year

= CPN
(1 )
=
+
n
n
FV
P
YTM
1
1

=


n
n
FV
YTM
P
1 1
1
(1 ) (1 )

= +

+ +

N N
FV
P CPN
y y y
1 1
0


1
+
=

+
E
Div P
P
r

1 0 1 1 1
0 0 0
Dividend Yield Capital Gain Rate

1
+
= = +
E
P P Div P Div
r
P P P
3 1 2
0 2 3
1
E E E E

1 (1 ) (1 ) (1 )

=
= + + + =
+ + + +

n
n
n
Div Div Div Div
P
r r r r
1
0
E


=

Div
P
r g
1 1 2
0 2
E E E E E
1

1 (1 ) (1 ) (1 )
+

= + + + +

+ + + +

N N
N N
Div Div Div Div
P
r r r r r g
1
wacc wacc
1

( )
+
+
= =



N FCF
N N
FCF FCF
FCF g
V FCF
r g r g
0 1 1
1
/


=

wacc FCF
V FCF EBITDA
EBITDA r g
0 1 1
1 E E
/ Dividend Payout Rate
Forward P/E

= = =

P Div EPS
EPS r g r g
PVGO
r
EPS
P0
e
+ =
1