Formula Flashcards by Monir Uzzaman

Calculate “Net Initial Outflow”

Invoice $ + Shipping $ + Installation$ (outflow)
+ Increase in WC (outflow)
- Cash Proceeds on Sale of old asset (net of tax) (inflow)
__________________________________________
= Net initial outflow

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Net Present Value Calculation Steps

Step 1: Calculate after tax cash flows

Step 2: Add depreciation benefit

Step 3: Multiply result by appropriate PV of an annuity

Step 4: Subtract initial cash outlfow

Result: Net present value

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Profitability Index

PV of net future cash inflow
__________________________
PV of net initial investment

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Payback Period

Initial outflow
__________
Annual annuity

TVM is ignored unless discounted cash flows are used to calculate.

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DOL (degree operating leverage)

% change in EBIT
_______________
% change in Sales

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DFL (degree financial leverage)

% change in EPS
_______________
% change in EBIT

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Combined (total) Leverage

= DOL * DFL

= (% change in EPS) / (% change in Sales)

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Cost of Debt

interest rate * (1 - tax rate)

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Cost of Retained Earnings Methods (3)

CAPM
DCF
BYRP

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Calculate Cost of Retained Earnings - CAPM

C = R + B (M- R)

C : cost of equity capital
R : Risk free rate
B : Beta efficiency
M : Market rate of return

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Calculate Cost of Retained Earnings - DCF

Cost R = ( Dividend Y1/ Price of stock ) + g

g : constant rate of growth of dividend.

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Calculate Cost of Retained Earnings - BYRP

cost RE = pretax cost of debt + Risk premium

Pretax cost of debt : YTM rate
Risk premium = B( Market - Rfr )

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Return on Investment (ROI)

Income
________

Investment Capital (average assets)

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Return on Assets (ROA)

Net income
__________
Average total assets

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Required Return

Investment * Cost of Capital

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Residual Income

Net Income - Required return

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Economic Value Added

Income after taxes - Required Return

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What does the Debt-to-equity ratio tell you?

The lower the ratio, the lower the risk.

total debt/ total shareholders equity

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Net Working Capital

CA-CL

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Current Ratio

Current Assets
_____________
Current Liabilities

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Quick Ratio

Cash + MKT Securities + Receivables
________________________________

Current Liabilities

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APR of Quick Payment Discount

[ 360 / (Pay Period - Discount Period)] x [Discount /(100-Discount %)]

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Inventory Turnover

COGS
____________

Average Inventory

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Inventory Conversion Period

365
_______________

Inventory Turnover

= Avg inventory / (Avg COGS / 365)

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A/R Turnover

Sales __________ Average A/R

A/R Collection Period

365 _____________ A/R Turnover = Avg AR / (Avg sale per day)

A/P Turnover

COGS _________ Average A/P

A/P Deferral Period

365 _______ A/P Turnover = Avg AP / ( COGS per day)

Economic Order Quantity (EOQ)

√((2 x Annual Sales x Order Cost)/(Carrying Cost per Unit)) "2SOC"

Investment Turnover

Sale ______________ Avg Investment

Cash conversion cycle

Inv conversion period + Rec. collection period - Payable deferral period

Reorder point

Safety stock + ( Lead time x sale during lead time)

Risk Premium

Market Rate - Risk Free Rate

EPS

NI / # shares O.S

Debt to Equity Ratio

Total Liabilities / Total SE

Owner’s equity Ratio

SE/ Total Asset

Debt Ratio

TL/TA

Capital turnover

= Annual Sales(revenue ) /Avg.Owner’s Equity

Number of days supply inventory

= 365/ Inventory TO

DuPont Formula

= ROS X Assets TO Where ROS = Net Sales / Net Income Assets TO = Sales / Total Assets

Real interest Rate (RIR)

= Nominal interest rate – Inflation Rate

Margin of Safety

MOS ($) = Total sale - BE sale MOS (%) = MOS $ / Total Sale

Cost of preferred stock

= ($) Outflow / Net inflow | = Dividend / (net proceed - flotation cost)

Profit margin

= Net income / Sale | = ROI / Asset turnover

Times interest earned

= EBIT ** / Interest expense **Add back depreciation n interest to get to PRE-tax income

Real GDP

= Norminal GDP / GDP deflator x 100

Real GDP per capita

= Real GPD / population

Multiplier effect

= 1/ (1-MPC) MPC + MPS = 1 Change in GPD = multiplier x change in spending

Inflation rate (%)

= CPI this period - CPI last period / CPI last period

Norminal interest rate

= Real interest rate + Inflation rate

Elasticity of supply & Demand - point method

Ep = change in QD% / Change in P % | = ( Q2 - Q1 / Q1 ) / (P2 - P1) / P1

Elasticity of supply & Demand - midpoint method

= ( Q2 - Q1 / Q1+ Q2 ) / (P2 - P1 / P1 + P2)

Cross elasticity

= % change in # of unit X / % change in price of Y Positive Px increase and Dy increase : X & Y are substitute Negative : Px increase and Dy decrease: X & Y are compliment

Income elasticity

= % change in demand / % change in income

Marginal product (Labor)

= change in total product / change in labor

Avg product

AP(L) = TP / L

Avg Fixed cost

AFC = FC / Quantity

Avg Variable cost

AVC = VC / Quantity

Avg total cost

ATC = TC / Q = AFC + AVC

Marginal cost

MC = Change in TC / Change in Quantity MC depend solely on VC FC do not influence MC

ARR =

Avg. Annual incremental Revenues – Avg. Annual incremental expenses / Initial (or avg) investment

The formula for developing the overhead is

Estimated total overhead costs/ Estimated activity volume = predetermine rate Applied overhead = Predetermine overhead rate x actual number of units used ( direct labor hours or machine hours )

APR =

Interest (cost) APR = ________________________ Principal x Time fraction of year

Effective annual interest rate

= ( 1+ (stated rate/n) )^n - 1