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FIN 300 Tip Sheet: Key Financial Formulas & Ratios

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FIN 300 Tip Sheet
Prepared by: Wiktoria G. (Feb 2019)
Net working capital = Current Assets – Current Liabilities
Profitability Ratios
π‘€π‘Žπ‘Ÿπ‘˜π‘’π‘‘ π‘£π‘Žπ‘™π‘’π‘’ π‘œπ‘“ π‘’π‘žπ‘’π‘–π‘‘π‘¦
π΅π‘œπ‘œπ‘˜ π‘£π‘Žπ‘™π‘’π‘’ π‘œπ‘“ π‘’π‘žπ‘’π‘–π‘‘π‘¦
Market to book ratio=
πΊπ‘Ÿπ‘œπ‘ π‘  π‘π‘Ÿπ‘œπ‘“π‘–π‘‘
π‘†π‘Žπ‘™π‘’π‘ 
Gross margin =
𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’
EPS= # π‘œπ‘“ π‘†β„Žπ‘Žπ‘Ÿπ‘’π‘  π‘œπ‘’π‘‘π‘ π‘‘π‘Žπ‘›π‘‘π‘–π‘›π‘”
Operating margin =
Enterprise value = Market value of equity + debt – cash
𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
Payout ratio = 𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’
Asset Efficiency ratios
πΆπ‘’π‘Ÿπ‘Ÿπ‘’π‘›π‘‘ 𝐴𝑠𝑠𝑒𝑑𝑠
Interest Coverage
𝐸𝐡𝐼𝑇
π‘†π‘Žπ‘™π‘’π‘ 
Current ratio = πΆπ‘’π‘Ÿπ‘Ÿπ‘’π‘›π‘‘ πΏπ‘–π‘Žπ‘π‘–π‘™π‘–π‘‘π‘–π‘’π‘ 
Quick ratio =
𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’
Net Profit margin = π‘‡π‘œπ‘‘π‘Žπ‘™ π‘ π‘Žπ‘™π‘’π‘ 
Retention rate = 1 – Payout ratio
Liquidity ratios
π‘‚π‘π‘’π‘Ÿπ‘Žπ‘‘π‘–π‘›π‘” π‘–π‘›π‘π‘œπ‘šπ‘’
π‘‡π‘œπ‘‘π‘Žπ‘™ π‘ π‘Žπ‘™π‘’π‘ 
=πΌπ‘›π‘‘π‘’π‘Ÿπ‘’π‘ π‘‘
Asset Turnover = π‘‡π‘œπ‘‘π‘Žπ‘™ 𝐴𝑠𝑠𝑒𝑑𝑠
πΆπ‘’π‘Ÿπ‘Ÿπ‘’π‘›π‘‘ π‘Žπ‘ π‘ π‘’π‘‘π‘ −π‘–π‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦
π‘†π‘Žπ‘™π‘’π‘ 
Fixed Asset Turnover = 𝐹𝑖π‘₯𝑒𝑑 𝐴𝑠𝑠𝑒𝑑𝑠
πΆπ‘’π‘Ÿπ‘Ÿπ‘’π‘›π‘‘ π‘™π‘–π‘Žπ‘π‘–π‘™π‘–π‘‘π‘–π‘’π‘ 
Capital intensity =
𝐸𝐡𝐼𝑇𝐷𝐴
=πΌπ‘›π‘‘π‘’π‘Ÿπ‘’π‘ π‘‘
πΈπ‘Žπ‘Ÿπ‘›π‘–π‘›π‘”π‘ 
π‘‡π‘œπ‘‘π‘Žπ‘™ π‘Žπ‘ π‘ π‘’π‘‘π‘ 
TIE = πΌπ‘›π‘‘π‘’π‘Ÿπ‘’π‘ π‘‘
π‘†π‘Žπ‘™π‘’π‘ 
Working Capital Ratios
Leverage Ratios
𝐴𝑐𝑐. π‘Ÿπ‘’π‘.
Acc. rec. days = π΄π‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘‘π‘Žπ‘–π‘™π‘¦ π‘ π‘Žπ‘™π‘’π‘ 
π‘‘π‘œπ‘‘π‘Žπ‘™ 𝑑𝑒𝑏𝑑
Debt-equity ratio = π‘‘π‘œπ‘‘π‘Žπ‘™ π‘’π‘žπ‘’π‘–π‘‘π‘¦
𝐴𝑐𝑐. π‘π‘Žπ‘¦.
Acc. pay. days = π΄π‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘‘π‘Žπ‘–π‘™π‘¦ 𝐢𝑂𝐺𝑆
π‘‘π‘œπ‘‘π‘Žπ‘™ 𝑑𝑒𝑏𝑑
Debt-capital ratio = π‘‘π‘œπ‘‘π‘Žπ‘™ π‘’π‘žπ‘’π‘–π‘‘π‘¦+π‘‘π‘œπ‘‘π‘Žπ‘™ 𝑑𝑒𝑏𝑑
𝐢𝑂𝐺𝑆
Inv. turnover = π΄π‘£π‘’π‘Ÿπ‘Žπ‘”π‘’ π‘–π‘›π‘£π‘’π‘›π‘‘π‘œπ‘Ÿπ‘¦/π‘¦π‘’π‘Žπ‘Ÿ
π‘‘π‘œπ‘‘π‘Žπ‘™ 𝑑𝑒𝑏𝑑
Debt-enterprise ratio = π‘šπ‘Žπ‘Ÿπ‘˜π‘’π‘‘ π‘£π‘Žπ‘™π‘’π‘’ π‘œπ‘“ π‘’π‘žπ‘’π‘–π‘‘π‘¦+𝑛𝑒𝑑 𝑑𝑒𝑏𝑑
Net debt = total debt – excess cash and short-term investments
Valuation Ratios
P/E ratio =
π‘€π‘Žπ‘Ÿπ‘˜π‘’π‘‘ πΆπ‘Žπ‘π‘–π‘‘π‘Žπ‘™π‘–π‘§π‘Žπ‘‘π‘–π‘œπ‘›
𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’
π‘†β„Žπ‘Žπ‘Ÿπ‘’ π‘π‘Ÿπ‘–π‘π‘’
π‘‘π‘œπ‘‘π‘Žπ‘™ π‘Žπ‘ π‘ π‘’π‘‘π‘ 
Equity multiplier = π΅π‘œπ‘œπ‘˜ π‘£π‘Žπ‘™π‘’π‘’ π‘œπ‘“ π‘’π‘žπ‘’π‘–π‘‘π‘¦
=
𝐸𝑃𝑆
PEG ratio =
New net financing = Projected assets – Projected Liab. and Equity
𝑃/𝐸
𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’
𝐸π‘₯𝑝𝑒𝑐𝑑𝑒𝑑 π‘’π‘Žπ‘Ÿπ‘›π‘–π‘›π‘”π‘  π‘”π‘Ÿπ‘œπ‘€π‘‘β„Ž
Sustainable Growth rate = 𝐡𝑒𝑔 π‘’π‘žπ‘’π‘–π‘‘π‘¦ x (1-payout r.) = ROE x R.R
𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’
Internal Growth rate = 𝐡𝑒𝑔 𝐴𝑠𝑠𝑒𝑑𝑠 x (1-payout r.) = ROA x R.R
Operating Returns
𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’
ROE = π΅π‘œπ‘œπ‘˜ π‘£π‘Žπ‘™π‘’π‘’ π‘œπ‘“ π‘’π‘žπ‘’π‘–π‘‘π‘¦
ROA =
DUPONT Model
𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’+π‘–π‘›π‘‘π‘’π‘Ÿπ‘’π‘ π‘‘ 𝑒π‘₯𝑝𝑒𝑛𝑠𝑒
ROE =
π‘‡π‘œπ‘‘π‘Žπ‘™ π‘Žπ‘ π‘ π‘’π‘‘π‘ 
𝐸𝐡𝐼𝑇 (1−π‘‡π‘Žπ‘₯ π‘Ÿπ‘Žπ‘‘π‘’)
ROIC = π΅π‘œπ‘œπ‘˜ π‘£π‘Žπ‘™π‘’π‘’ π‘œπ‘“ π‘’π‘žπ‘’π‘–π‘‘π‘¦+𝑁𝑒𝑑 𝑑𝑒𝑏𝑑
=
𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’
= Profit Margin x Asset Turnover x Financial Leverage
πΈπ‘žπ‘’π‘–π‘‘π‘¦
𝑁𝑒𝑑 π‘–π‘›π‘π‘œπ‘šπ‘’
π‘†π‘Žπ‘™π‘’π‘ 
π‘†π‘Žπ‘™π‘’π‘ 
Other formulas
𝐢
𝐢
𝐢
1
2
𝑛
PV of a cash flow stream : PV = Co + (1+π‘Ÿ)
+(1+π‘Ÿ)
2 +… +(1+π‘Ÿ)𝑛
𝐢
PV of Perpetuity : PV = π‘Ÿ
𝐴𝑃𝑅 C/Y
EAR = (1+
1
FV of Annuity = C x π‘Ÿ ((1+r)n-1)
1
1+𝑔
PV of Growing Annuity = C x π‘Ÿ−𝑔(1 –( 1+π‘Ÿ )n)
1
FV of Growing Annuity = C1 x π‘Ÿ−𝑔((1+r)n-(1+g)n)
PMT = 1
π‘Ÿ
(1−
1
(1+π‘Ÿ)𝑛
𝐢
𝑛
PV = (1+π‘Ÿ)
𝑛 (discounting)
EPR = (1+ 𝐢/π‘Œ )P/Y – 1
1
PV of Annuity = C x π‘Ÿ (1 - (1+π‘Ÿ)𝑛 )
𝑃
Compound Interest:
FVn= C0 x (1 + r)n (compounding)
Interest rates
𝐢
PV of Growing Perpetuity : PV = π‘Ÿ−𝑔
1
π‘‡π‘œπ‘‘π‘Žπ‘™ π‘Žπ‘ π‘ π‘’π‘‘π‘ 
xπ‘‡π‘œπ‘‘π‘Žπ‘™ 𝐴𝑠𝑠𝑒𝑑𝑠xπ‘‡π‘œπ‘‘π‘Žπ‘™ π‘’π‘žπ‘’π‘–π‘‘π‘¦
𝐴𝑃𝑅 C/Y
) –1
𝐢/π‘Œ
If r = APR, change P/Y and C/Y
If r = EPR, P/y = 1 and C/Y = 1
Equivalent n-period Effective rate = (1+r)n-1
APR = no compounding (simple interest)
𝐴𝑃𝑅
1+EAR = (1+ π‘š )m , where m= # of compounding
periods per year
π‘π‘œπ‘šπ‘–π‘›π‘Žπ‘™ π‘…π‘Žπ‘‘π‘’−πΌπ‘›π‘“π‘™π‘Žπ‘‘π‘–π‘œπ‘› π‘…π‘Žπ‘‘π‘’
Real rate =
1+πΌπ‘›π‘“π‘™π‘Žπ‘‘π‘–π‘œπ‘› π‘Ÿπ‘Žπ‘‘π‘’
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