FORMULA SHEET
SHORT-TERM SOLVENCY RATIOS
Current ratio = Current assets ÷ Current liabilities
Quick ratio = (Current assets – Inventory) ÷ Current liabilities
Cash ratio = Cash ÷ Current liabilities
FINANCIAL LEVERAGE RATIOS
Total debt ratio = Total debt ÷ Total assets = (Total assets – Total equity) ÷ Total assets
Debt-equity ratio = Total debt ÷ Total equity
Equity multiplier = Total assets ÷ Total equity = 1 + debt-equity ratio
Times interest earned = Earnings before interest and taxes ÷ Interest
Cash coverage = (Earnings before interest and taxes + depreciation + amortization) ÷ Interest
TURNOVER RATIOS
Inventory turnover = Cost of goods sold ÷ Inventory
Days sales in inventory = 365 ÷ Inventory turnover
Receivables turnover = Sales ÷ Receivables
Days’ sales in receivables= 365 ÷ Receivables turnover
Total asset turnover = Sales ÷ Total assets
Days in inventory = Days in period ÷ Inventory turnover
PROFITABILITY MEASURES
Profit margin = Net income ÷ Sales
Return on assets = Net income ÷ Total assets
Return on equity = Net income ÷ Total equity
EBITDA margin = EBITDA ÷ Sales
MARKET VALUE RATIOS
Price-to-earnings ratio = Market price per share ÷ Earnings per share
Market-to-book ratio = Market price per share ÷ Book value per share
Market capitalization = Market price per share x Shares Outstanding
Enterprise Value (EV) = Market capitalization + Market value of interest-bearing debt – cash
EV Multiple = EV ÷ EBITDA
DUPONT IDENTITY
ROA
ROA
ROE
ROE
=
=
=
Net Income
Sales

Sales
Total assets
=
Profit margin
x
Total asset turnover
Net Income
Sales
Profit margin
COMPOUNDING AND DISCOUNTING
FV = PV(1 + r)t
Effective annual rate
APR m
EAR = (1 +
) −1
m
PV of Ordinary Annuity
1 − (1 + r)−t
PV = CF [
]
r
PV of Annuity Due
1 − (1 + r)−t
PV = CF(1 + r) [
]
r
PV of Perpetuity Due
CF(1 + r)
PV =
r

Sales
Total assets

x
Total assets turnover
Total assets
Total equity
x
Equity multiplier
FV
(1 + r)t
PV =
FV of Ordinary Annuity
FV = CF [
(1 + r)t − 1
]
r
FV of Annuity Due
FV = CF(1 + r) [
(1 + r)t − 1
]
r
PV of Ordinary Perpetuity
PV =
General asset valuation
n
V= ∑
t=1
CF
r
CFt
(1 + r)t
Value of Bond
1 − (1 + R B )−n
Face Value
𝑉𝐵 = Coupon [
]+
RB
(1 + R B )n
Value of Preference Share
𝑃𝑃 =
Dp
RP
Value of Ordinary Share: Constant growth
D0 (1 + g)
D1
𝑉𝐸 =
=
RE − g
RE − g
Average Return
∑𝑛 R
̅ = 𝑡=1 𝑡
R
𝑛
CF1
CFT
NPV = (
+⋯+
)−I
(1 + r)1
(1 + r)T
Expected Return
Standard Deviation of Expected Return
E(R) = ∑ R i P(R i )
Standard Deviation of Returns
𝜎𝑅 = √
̅)2
∑𝑛𝑡=1(R 𝑡 − R
𝑛−1
2
σE(R) = √∑(R i − E(R)) × P(R i )
Relation between leverage and equity beta
Beta ASSET = Beta EQUITY × S/(S+B) + Beta DEBT × B/(S+B)
The cost of equity capital
CAPM, RS = RF +  (RM – RF)
The weighted average cost of capital
WACC = (S/(B+P+S))RS + (P/(B+P+S))RP + (B/(B+P+S))RD(1-TC)
Expected return of equity capital
RS = R0 + (R0 – RB)(B/S)(1-Tc)
Value of unlevered and levered firm
EBIT ∗ (1 − 𝑇𝑐)
VU =
𝑅0
VL = VU + B*Tc
and VL = B + S
Net working capital + Fixed assets = Long-term debt + Equity
Net working capital = Cash + Other current assets – Current liabilities
Cash = Long-term debt + Equity + Current Liabilities – Other current assets – Fixed assets
Operating cycle = inventory period + accounts receivable period
Cash cycle = operating cycle – accounts payable period