Debt Service Coverage Ratio (DSCR) = NOI / Total Debt Service ---Effective Gross Income = Potential Gross Rental Income + Other Income - Vacancy & Bad Debt Allowance. ---Net operating income = RR − OE where: RR = real estate revenue OE = operating expenses ---NOI = Gross Potential Income – vacancy and collection loss – operating expenses ----Profitability Index = PV of all cash inflows / Initial cash outflows --Building Efficiency = Net leasable area / Built up area ---Development Margin = Development Profit / Total development Cost ---- Development Profit = Total Revenue - Total Cost ---Total Development Cost = Land Cost + Development Cost + sum of interest and commissions ----Months supply = (Vacant space + space in construction) / new absorption per month ---Debt service coverage ratio = net operating income / total debt service ---Mortgage debt ratio = sum of monthly debt payment / Gross monthly income ---Consumer Price Index = (Cost given year / Cost base year) x 100% ---Average Rate of Return = Average Net Income / Average Net Investment ---Capital Recovery or Cash Pay-Off Period (in years) = Stocks / Annual Cash Dividends ----- Payback period in Years = Initial Year Cash Outflow / Succeeding Annual Net Cash Flow ---Goodwill = P-(A-L), where: P = Purchase price of the target company, A = Fair market value of assets, L = Fair market value of liabilities. ---internal rate of return (IRR ) 0 (NPV) = P0 + P1/(1+IRR) + P2/(1+IRR)^2 + P3/(1+IRR)^3 + . . . +Pn/(1+IRR)^n Where: P0 = the initial investment (cash outflow) P1, P2, P3..., = the cash flows in periods 1, 2, 3, etc. IRR = the project's internal rate of return NPV = the Net Present Value N = the holding periods ---Criteria for acceptability: NPV > 0 IRR > the discount rate, r ---Conversion 1 sq.m = 10.764 sq.ft ---Benefit-Cost Ratio = (€^N t=0 CFt (Benefits / (1+it)^t) / (€^N t=0 CFt (Costs) / (1+it)^t) Where, € = sum N = total number of periods t = period in which the cash flows occur CF = Cash Floe of a period i = interest rate or discount rate ---Overall Profit Ability Ratio = Net Profit / Total Assets --Capital Structure Ratios 1. Debt Equity Ratio = Total Long-term Debts / Shareholder Fund 2. Proprietary Ratio = Shareholders Fund / Total Assets 3. Capital Gearing Ratio = Equity Share Capital / Fixed Interesr Bearing Funds 4. Debt Service Ratio = Net Profit Before Interest and Taxes / Fixed Interest Charges ---Working Capital Ratios 1. Inventory Ratio = Net Sales / Inventory 2. Debtors Turnover Ratio = Total Sales / Accounts Receivables 3. Debt Collection Ratio = (Receivable x Months or days in a year ) / Net Credit Sales for the year 4. Creditors Turnover Ratio = Net Credit Purchases / Average Accounts Payable 5. Average Payment Period = (Average Trade Creditors / Net Credit Purchases) x 100 6. Working Capital Turnover Ratio = Net Sales / Working Capital 7. Fixed Assets Turnover Ratio = Cost of Goods Sold / Total Fixed Assets 8. Capital Turnover Ratio = Cost of Sales / Capital Employed --Profitability Ratios 1. Gross Profit Ratio = (Gross Profit / Net Sales) x 100 2.Operating Cost Ratio = (Operating Cost / Net Sales) x 100 3. Operating Profit Ratio = (Operating Profit / Net Sales) x 100 4. Net Profit Ratio = (Net Profit / Net Sales) x 100 5. Return on Investment (ROI) Ratio = (Profit After Interest and Taxes / Shareholders Investment) x 100 6. Return on Capital Employed Ratio = (Net Profit after Taxes / Gross Capital Employed) x 100 7. Earnings per Share Ratio = (Net Profit after Tax and Preferred Dividend / No. of Equity Shares) 8. Dividend Payout Ratio = (Dividend Per Equity Share / Earnings per Equity Share) x 100 9. Earnings Per Equity Share = Net Profit after Tax and Preferred Dividend / No. of Equity Share 10. Dividend Yield Ratio = (Dividend Per Share / Market Value per Share ) x 100 11. Price Earnings Ratio = (Market Price Per Equity Share / Earnings per Share) x 100 12. Net Profit to Net Worth Ratio = (Net Profit after Taxes / Shareholders Net Worth) x 100 ---Liquidity Ratios 1. Current Ratio = Current Assets / Current Liabilities 2. Quick Ratio = Liquid Assets / Current Liabilities 3. Absolute Liquid Ratio = Absolute Liquid Assets / Current Liabilities -----Discounted Cash Flow = CF1 / (1+i)^1 + CF2 / (1+i)^2 +...+ CFn / (1+i)^n ---- Benefit-Cost Analysis = PV of Benefit / PV of Cost ---RevPOR = Total Revenue / Occupied Rooms ---Average Daily Rate (ADR) = Number of Rooms Sold / Rooms Revenue Earned ---RevPAR = Total Room Revenue / Total Rooms Available in the period ---GOPPAR = Gross Operating Profit / Available Room ---- ARPAR = Adjusted Revenue / Available Room ----TREVPAR = Total Revenue / Available Room ---Net Operating Income = Net Rental Income - Total Expenses ---Capitalization Rate = Annual Net Operating Income / Property Value ---Gross Rent Multiplier = Purchase Price / Annual Rental Income ---Break - even Ratio = (Operating Expenses + Debt Service - Reserves) / Gross Operating Income ---Break-Even Ratio (rental) = (Total Debt Service + Annual Operating Expenses) / Gross Annual Rental Income --Equity Amount = Total Development Cost - Maximum Loan Amount ---- Max Loan Amount obtained for this project = Total Development Cost x Loan to Cost Percentage ----- Total Development Cost = Land Cost + Development Cost + Sum of Interest and Commission ----- Replacement Rent per Leased SF = Replacement Rent per GSF x (1 / 1 - Loss Factor) x (1 / 1 - Vacancy) --Yield on Cost % = Expected Stabilized NOI / Expected Total Costs --- Stabilized NOI per Gross SF = Rental Revenue per Gross SF - Operating Costs per GSF ---Rent per Gross Square Foot (GSF) = Rent per Leased SF x (1 -Loss Factor %) --Rent per Leased SF (Square foot) = Market Rent per Leasable SF x (1 - Stabilized Vacancy %) ---- Build to x% calculation (yield cost) = Expected Stabilized NOI / Expected Total Costs ---Break - Event Point = Fixed Cost / (Price per unit - Variable Cost) --- Capital Employed = Total Assets - Current Liabilities = Equity + Noncurrent Liabilities ---FV (simple annual interest) = Original Investment x (1+i) x n ---- FV (interest compounded annualy) = Original Investment x (1+i)^n ---- Net Profit Margin = Net Profit / Net Sales ---Return on Equity (ROE) = Net Income / Shareholders Equity --Quick Ratio = (Current Assets - Inventories) / Current Liabilities ----Current Ratio = Current Assets / Current Liabilities ---Debt-to-equity ratio = Total Liabilities / Shareholders Equity ---- Net Present Value = €t=1 (Ct / 1+r)^t) - C0 --Present Value = Future Cash Flow / (1+r)^n ---- ROI % = Operating Income / Operating Assets ---Residual Income = Operating Income - (Operating Assets x Target Rate of Return) ----- Land Value = Market Value - Cost construct new - Builders Fee ---- Property Value = (NOI / Overall Cap Rate) - Conversion Cost ----Occupancy Rate = (No. of occupied units / total no. of units) x 100 ---- Vacancy Rate = (No. of vacant units / total no. of units) x 100 ----Absorption rate = Current Inventory / (Closed Sales / Time Period) ---- Futute Value of annuity due S = R ((1+i)^n - 1) / i ) (1+i) Where, S = future value of annuity R = periodic payment in an annuity / amortized payment i = interest rate n = number of periods ----- Present Value P = R (1 - (1+i)^-n / i) Where, P = Present Value S = future value of annuity R = periodic payment in an annuity / amortized payment i = interest rate n = number of periods ---Ordinary Annuity S = R ((1+i)^n - 1) / i) Where, S = future value of annuity R = periodic payment in an annuity / amortized payment i = interest rate n = number of periods ----- B9a. Cases Studies Formulas 1. Net Profit Margin = Net Income after Tax / Sales 2. Conversion 1 sqm = 10.764 sq.ft 3. Potential Gross Income = 100% rent of all units x 12 months 4. Occupancy Rate = Actual Income / Total Potential Gross Income 5. Operating Income (EBIT) = Gross Profit - Operating Expenses - Depreciation - Amortization 6. Net Income = Revenue - COGS - Expenses 7. Consumer Price Index = (Cost given year / Cost base year) x 100% 8. Payback Period = Amount to be invested / Estimated net cash flow 9. Vacancy Rate = number of vacancy units / total number of units x 100% 10. Mortgage debt ratio = sum of monthly debt payment / Gross monthly income 11. Debt service coverage ratio = net operating income / total debt service 12. Months supply = (Vacant space + space in construction) / new absorption per month 13. Total Development Cost = Land Cost + Development Cost + sum of interest and commissions 14. Development Profit = Total Revenue - Total Cost 15. Development Margin = Development Profit / Total development Cost 16. Building Efficiency = Net leasable area / Built up area 17. FV = PV (1+r)^n 18. PV = FV x (1/(1+r)^n 19. Profitability Index = PV of all cash inflows / Initial cash outflows B9b. Cases Studies 1. Profitability - a. Net profit margin = Net Income after tax / Sales b. Operating Profit Margin = Profit before Interest & Taxes / Sales c. Gross Profit Margin = Gross Profit / Sales d. Return on Financier's Investment = Net Income / Stock Equity e. Return on Owner's Investment = Net Income / Stock Equity f. Return on Common Stock Equity = (Net Income - PS Dividend) / Net worth par value of preferred stocks g. Return on Net Operating Profit = Profit before Interest & Taxes / Total Tangible Assets i. Asset Turnover = Sales / Total Tangible Assets j. Return on Assets or earning power = Net income / Total Tangible Assets 2. Liquidity - a. Current Ratio = Current Assets / Current Liabilities b. Quick or Acid-Test Ratio = Current Assets-Inventories / Current Liabilities c. Liquidity of Inventories = Cost of Sales / Average Inventory d. Defensive Position = (Cash + Marketable Securities + Receivables) / ( Projected Operating Expenses / No. of days) 3. Test of Debt Service - a. Debt-to-net worth ratio = Total liabilities / Total equities b. Total capitalization ratio = Long-term liabilities / Long-term liabilities & equity 4. Test of Total Debt Coverage = Profit before interest & taxes / (Interest + principal payments) x (1/1income tax rate) 5. Fixed and Variable Costs a. Break-even Volume Analysis BEV = Fixed Cost / (Selling Price - Variable Cost/Unit) b. Break-even Cash Analysis BEC = Cash Fixed Cost / (Selling Price - Cash Variable Cost / Unit) C. Break-even Selling Price Analysis BESP = (Variable Costs + Fixed Costs) / Unit Volume = Total Cost / Sales x Selling Price d. Break-even Sales Analysis BES = BESP x Unit Volume = Fixed Cost / (Variable Cost / Net Sales) 6. Test of Financial Leverage - a. Earnings per share = Net Income / Shares b. Dividends per share = (Net Income -Preferred Stock Dividends - Retained Earnings) / Common Share 7. Test of Capital Investment - a. Average Rate of Return = Average Net Income / Average Net Investment b. Payback period in Years = Initial Year Cash Outflow / Succeeding Annual Net Cash Flow C. Capital Recovery or Cash Pay-Off Period (in years) = Stocks / Annual Cash Dividends 9c Goodwill = P-(A-L), where: P = Purchase price of the target company, A = Fair market value of assets, L = Fair market value of liabilities. ----weighted average cost of capital (WACC) and The WACC discount formula : WACC = E/V x Ce + D/V x Cd x 1-T), ----adjusted present value (APV). APV = NPV + PV ---Capitalization rate = annual net operating income / cost or value. ---capitalization rate = (risk-free rate + historical real estate risk premium - expected net operating income growth rate) / 1 - (annual capital expenditures / net operating income). ---income capitalization approach formula Market Value = Net Operating Income / Capital NOI = Gross Potential Income – vacancy and collection loss – operating expenses ----Net operating income= RR − OE where: RR=real estate revenue OE=operating expenses -----The internal rate of revenue formula is as follows: 0 (NPV) = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/(1+IRR)n Where: P0 equals the initial investment (cash outflow) P1, P2, P3..., equals the cash flows in periods 1, 2, 3, etc. IRR equals the project's internal rate of return NPV equals the Net Present Value N equals the holding periods ----Criteria for acceptability: NPV > 0 or IRR > the discount rate, r ------Present Value= FV (1+r) ^n where: FV=Future Value r=Rate of return n=Number of periods -----The debt service coverage ratio (DSCR) is defined as net operating income divided by total debt service. ----Potential gross income (also known as PGI or gross potential rent) is the total revenue a property could generate if 100% leased at market rent. For example, some rents may be over or under market, or the property may not be 100% occupied. Nevertheless, PGI reflects the the most annual rent a property would collect. -----