Final Exam Equations Sheet
Equations from Exam 1
Liquidity Ratios
current assets
curent liabilities
ROCE = EBIT(1-T)/Total Assets
current assets−inventory
current liabilities
Asset Management Ratios
accounts receivable
ACP = DS0 =
average daily sales
accounts receivable
x 360
sales
inventory turnover =
=
cost of goods sold
inventory
fixed asset turnover =
sales
fixed assets
total asset turnover =
sales
total asset
= TAT
Data Management Ratios
debt ratio = TL/TA
𝑠𝑡𝑜𝑐𝑘 𝑝𝑟𝑖𝑐𝑒
𝐸𝑃𝑆
𝑚𝑎𝑟𝑘𝑒𝑡 𝑡𝑜 𝑏𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑟𝑎𝑡𝑖𝑜 =
𝑠𝑡𝑜𝑐𝑘 𝑝𝑟𝑖𝑐𝑒
𝑏𝑜𝑜𝑘 𝑣𝑎𝑙𝑢𝑒 𝑝𝑒𝑟 𝑠ℎ𝑎𝑟𝑒
Book value = common equity/# of shares
EPS = Net Income/ # of shares
DuPont Equations
ROA = ROS*TAT
ROE = ROS*TAT*EM, where
EM =TA/Equity = [1/(1- (TL/TA))]
Other
Sales x profit margin = net income
Net income x retention rate = retained earnings
Cost ratio = COGS/sales
EBIT
interest
cash coverage =
Market Value Ratios
P/E 𝑟𝑎𝑡𝑖𝑜 =
ICP = Inventory/(COGS/360) = 360/ITO
TIE =
net income
equity
BEP = EBIT/Total Assets
current ratio =
quick ratio =
ROE =
EBIT + depreciation
interest
𝑓𝑖𝑥𝑒𝑑 𝑐ℎ𝑎𝑟𝑔𝑒 𝑐𝑜𝑣𝑒𝑟𝑎𝑔𝑒 =
𝐸𝐵𝐼𝑇 + 𝑙𝑒𝑎𝑠𝑒 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 + 𝑙𝑒𝑎𝑠𝑒 𝑝𝑎𝑦𝑚𝑒𝑛𝑡𝑠
Profitability Ratios
ROS =
net income
sales
ROA =
net income
total assets
Cash Conversion Cycle
CCC = ICP + DSO – AP deferral
AP deferral = Accounts Payable/(COGS/360) =
(Accounts Payable/COGS) x 360
Operating cycle = ICP + DSO
From Chapter 4:
(4.3) k = kPR + INFL + DR + LR + MR
(4.4) INFLn = (I1+I2+….+In)/n
1
Simplified “Textbook” Financial Statements
Sales
-COGS
Gross Margin
-(Other) Expenses
EBIT = Operating
Income
-Interest
EBT
-Taxes
Net Income = EAT
-DIV
Retained Earnings
1.
Sales
-VC
Gross Profit
-Fixed Cost
EBIT
-I
EBT
-T
NI
-DIV
RE
Assets
Cash
(Net) Accounts Rec.
Inventory
Current Assets = Gross
Working Capital
Net Fixed Assets
Total Assets
Liab. & O.E.
Accounts Payable
Accruals
Notes Payable
Current Liabilities
Long term debt
Total Liabilities
Net working capital = CA-CL
Par value
Stock
Paid in excess or surplus
+Retained Earnings
Total Liab. and O.E.
Equity
Equations/Formulas from AGEC 424: Exam 2
PV = PMT
EBIT 1 - tax rate 
K
ROCE =
14.
Constant
growth model:
debt + equity
2. Contribution = P – V
P0 
3. Contribution margin = CM = (P-V)/P
4. Operating breakeven quantity:
D1
D (1  g)
 0
Ks  g
Ks  g
In general, if the constant growth model is
applied after time zero then:
QB/E = FC / (P – V)
5. Financial breakeven quantity:
QBE= (FC+I)/(P - V)
16. MRP = KM – KRF
n
17. Mean:
SB/E = FC / CM
S - VC
S - VC – Fc
k̂   p i k i
i 1
Gross Profit
=
EBIT
8. %ΔEBIT = DOL x %ΔSales
18. Variance:
𝜎 2 = ∑𝑛𝑖=1 𝑝𝑖 (𝑘𝑖 − 𝑘̂)
2
EBIT
9. DFL =
EBIT - Interest
19. Standard deviation: 𝜎 = √𝜎 2
𝜎
20. CV = ̂
𝑘
10. %ΔEPS = DFL x %ΔEBIT
21. Portfolio beta: 𝛽𝑝 = ∑𝑛𝑖=1 𝛽𝑖 𝑤𝑖
11.
DN
Ks  g
15. SML: Ks = KRF + (KM – KRF)s
6. SB/E = QB/E(P)
7. DOL =
PN 1 
Sales  VC
DTL 
 DOLxDFL
EBIT  Interest
12. %ΔEPS = DTL x %ΔSales
22. Portfolio expected return:
𝑛
𝑘̂𝑝 = ∑ 𝑘̂𝑖 𝑤𝑖
𝑖=1
13. PV of a perpetual annuity:
2
23. Effective Annual interest rate:
n
i

EAR  1    1
 n
24. current yield on a bond = (annual coupon
interest)/ (current bond price)
25. YTM = current yield + capital gains yield
(If you know the YTM and the current yield on
a bond, you can subtract to get the expected
capital gains.)
26. The required return on a stock is equal to the
dividend yield plus expected capital gains
yield.
27. capital gains yield = (Pt - Pt-1)/Pt-1
28. Dividend yield = D1/P0
“Equation” Sheet from AGEC 424 Exam 3
Net Salvage Value (NSV) Calculation
Selling price
Tax on SV:
Adjusted Basis:
-Tax on SV
NSV
Selling Price
Initial Basis
-Adjusted Basis
-Accumulated dep.
Taxable gain (loss)
Adjusted Basis
x tax rate
Tax (tax “credit” if neg.)
Replacement Investmenta (we will do the third column)
Buy a new machine
Keep your old machine
Replacement = Buy new
minus keep oldb
Initial outlay
-Cost of new machine
-/+ NWC
- Current NSV old machine
-Cost of new machine
- /+NWC
+ Current NSV old machine
Depreciation old machine
Change in depreciation is
used in the modified income
statement to get operating cash
flow
Operating cash flow
Depreciation new machine
Terminal Cash Flow
+ NSV new machine
+/-NWC offset
+ ending NSV old machine
+ NSV new machine
- ending NSV old machine
+/-NWC offset
a
In AGEC 424 we always do replacement problems where the life is the same for the new and for the
old. If the life is different one needs to take the net present values of “new machine” and “keep old”
separately and then compute the equivalent annual annuity before comparing.
b
There are three items in bold. These are the three differences between a new investment problem and a
replacement investment problem.
n
29. SML: ks = kRF + s (kM – kRF)
30. Mean or expected value:
k̂   p i k i
i 1
3