Useful Formula
𝐷𝑂𝐿 =
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑜𝑓𝑖𝑡
𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑠𝑎𝑙𝑒𝑠
𝐷𝑂𝐿 = 1 +
𝑓𝑖𝑥𝑒𝑑 𝑐𝑜𝑠𝑡
𝑝𝑟𝑜𝑓𝑖𝑡

Debt 
R O E  1  t    R O A   R O A  r  
Equity 

𝑅𝑂𝐸 =
𝑛𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑠𝑎𝑙𝑒𝑠 𝑎𝑠𝑠𝑒𝑡𝑠
×
×
𝑠𝑎𝑙𝑒𝑠
𝑎𝑠𝑠𝑒𝑡𝑠 𝑒𝑞𝑢𝑖𝑡𝑦
𝐸(𝐷1 ) + 𝐸(𝑃1 )
1+𝑘
𝐸(𝐷1 ) + [𝐸(𝑃1 ) − 𝑃0 ]
𝐻𝑃𝑅 =
𝑃0
𝑉0 =
𝑃𝑉𝐺𝑂 = 𝑃0 − (
𝐸1
)
𝑘
𝑃0
1−𝑏
=
𝐸1
𝑘 − (𝑅𝑂𝐸 × 𝑏)
𝑉0 =
𝐷0 (1 + 𝑔𝑀 ) 𝐷0 𝐻(𝑔ℎ − 𝑔𝑀 )
+
𝑘 − 𝑔𝑀
𝑘 − 𝑔𝑀
FCFF = EBIT (1 – tax rate) + Depreciation – Capital expenditure – Increase in net working capital
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑓𝑖𝑟𝑚 = ∑𝑇𝑡=1
𝐹𝐶𝐹𝐹𝑡
𝑃𝑇
+
(1+𝑊𝐴𝐶𝐶)𝑡
(1+𝑊𝐴𝐶𝐶)𝑇
FCFE = FCFF – Interest expense (1-tax rate) + Increases in net debt
𝐹𝐶𝐹𝐸
𝑃
𝐸𝑞𝑢𝑖𝑡𝑦 𝑉𝑎𝑙𝑢𝑒 = ∑𝑇𝑡=1 (1+𝑘 𝑡)𝑡 + (1+𝑘𝑇 )𝑇
𝑒
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𝑒