Formulas

Question 1

Chapter 6: Liquidity analysis: Current Ratio

Answer 1

Current Assets
___________
Current Liabilities

Question 2

Chapter 6: Liquidity analysis: Quick or Acid Test Ratio

Answer 2

(Current Assets - Inventory)
___________
Current Liabilities

Question 3

Chapter 6: Leverage Ratios: Debt Ratio

Answer 3

Long Term Debt
___________
Total Assets

Question 4

Chapter 6: Leverage Ratios: Debt to Equity (or Gearing) Ratio

Answer 4

Long Term Debt
___________
Equity

Question 5

Chapter 6: Leverage Ratios: Interest Cover

Answer 5

Operating Income
___________
Interest Expense

Question 6

Chapter 6: Profitability Ratios: Sales to Assets

Answer 6

Sales
___________
Total Assets

Question 7

Chapter 6: Profitability Ratios: Net Profit Margin

Answer 7

Net Income
___________
Sales

Question 8

Chapter 6: Profitability Ratios: Return on Assets

Answer 8

Net Income
___________
Total Assets

Question 9

Chapter 6: Return on Assets (with Sales, Net Income, and Total Assets)

Answer 9

Return on Assets = Sales to Assets X Net Profit Margin

Sales to Assets = Sales / Total Assets
Net Profit Margin = Net Income / Sales

Question 10

Chapter 6: Return on Equity

Answer 10

Net Income
___________
Equity

Question 11

Chapter 6: Return on Equity with Return on Assets

Answer 11

Return on Assets X Net Income / Equity

Question 12

Chapter 6: Inventory Turnover Ratio

Answer 12

Cost of Goods Sold
___________
Inventory

Question 13

Chapter 6: Payout Ratio

Answer 13

Dividends
___________
Earnings

Question 14

Chapter 6: Retention Rate

Answer 14

1 - Payout Ratio

Question 15

Chapter 6: P/E Ratio

Answer 15

Share or Market Price
___________
Earnings

Question 16

Chapter 6: Market to Book Ratio

Answer 16

Share or Market Price
___________
Book Value

Question 17

Chapter 6: Dividend Yield

Answer 17

Dividend
______________________
Share or Market Price (last year)

Question 18

Chapter 8: Future Value

Answer 18

FV = PV ( 1 + i / m ) ^ n * m

Question 19

Chapter 8: Present Value

Answer 19

PV = FV / ( 1 + i ) ^ n

Question 20

Chapter 8: Future Value of Annuity

Answer 20

FVA = PMT / i [ ( 1 + i ) ^ n - 1 ]

Question 21

Chapter 8: Present Value of An Annuity

Answer 21

Look at notes… Cannot type it here.

PVA = PMT / i [ ( 1 + i ) ^ n - 1 / ( 1 + i ) ^ n ]

Question 22

Chapter 8: Present Value of Perpetuity

Answer 22

PVP (without growth each year forever) = PMT / i

PVP (with growth each year forever) = PMT / i - g

Question 23

Chapter 8: Rate of Return

Answer 23

R = Capital Gain + Dividend Yield

Capital Gain =

Selling Price - Purchase Price
_________________________
Purchase Price

Dividend Yield =

Cash Dividend
____________
Purchase Price

Question 24

Chapter 9: Preferred Stock Valuation

Answer 24

Share price =

Dividends
___________________
Required Rate of Return

Question 25

Chapter 9: Common Stock

Answer 25

Look at notes... Dividends _________ (1 + K) ^ n...

Question 26

Chapter 9: Constant Dividends

Answer 26

Dividends ________ Required Rate of Return

Question 27

Chapter 9: Dividends with Constant Growth

Answer 27

D ( 1 + g ) ________ Return - g

Question 28

Chapter 9: Dividend with Constant Growth (will pay... future)

Answer 28

Dividend ________ Return - g

Question 29

Chapter 9: Constant Growth and Dividend Payout Ratio

Answer 29

``` g = (1 - payout ratio) x Return on Equity g = Retention Rate x Return on Equity ```

Question 30

Chapter 13: Sharpe Ratio

Answer 30

(Fund Average Return – Risk Free Return) / Standard Deviation of the Fund

Question 31

Chapter 13: Alpha

Answer 31

Fund return – [Risk free rate + Beta of fund (Benchmark return – Risk free return)] Also: Fund return - CAPM

Question 32

Chapter 13: Treynor's Ratio

Answer 32

(Fund Average Return – Risk Free Return) / Beta of the Fund

Question 33

Chapter 13: Net Asset Value

Answer 33

(Market Value of Assets – Liabilities) / Number of Units

Question 34

Chapter 12: Nominal Rate

Answer 34

1 + nominal rate = (1 + real rate) * (1 + inflation rate)

Question 35

Chapter 12: Real Rate

Answer 35

1 + real rate = 1 + nominal rate / 1 + inflation rate

Question 36

Chapter 12: Return on two asset portfolio

Answer 36

Return of portfolio = weighting 1 x return 1 + weighting 2 x return 2

Question 37

Chapter 12: CAPM (Overall market)

Answer 37

Return = Rf + Beta (R market - Rf)

Question 38

Chapter 12: CAPM (Market Premium)

Answer 38

Return = Rf + Beta (Market Premium)