Introduction to Finance:
The Basics
Formula Sheet
Xi Yang
Department of Finance
SUMMARY OF FORMULA
MODULE 2 FINANCIAL STATEMENTS AND CASH FLOW
•
Assets≡Liabilities + Stockholders’ Equity
•
Net working capital=Current Assets – Current Liabilities
•
Revenue−Expenses≡Income
MODULE 3 FINANCIAL STATEMENT ANALYSIS
Current assets
•
Current ratio =
•
Quick ratio =
•
Cash ratio =
•
Operating cash flow ratio =
•
stockholders’ equity
Total Debt Ratio = Total assets –Total
Total assets
•
Equity Multiplier = Total stockholders’ equity
•
EBIT
Interest coverage ratio= Interest
expense
•
Inventory Turnover = Cost of Goods Sold / Inventory
•
Days’ sales in inventory (DSI) = Inventory turnover
•
Total asset turnover =
•
Gross profit margin = Total Revenues
•
Net profit margin = Total revenue
•
Return on Assets (ROA) = Total assets
•
Return on Equity (ROE) = Total equity
•
ROE = Net Profit Margin × Total Asset Turnover × Equity Multiplier
•
Price to earnings ratio (P/E ratio) = Current share price/Earnings per share
•
Market capitalization (market cap) = Current price per share × Shares outstanding
Current liabilities
Cash +Marketable securities +Accounts receivable
Current liabilities
Cash and cash equivalents
Current liabilities
Cash flow from operations
current liabilities
Total assets
365 days
Total revenues
Total assets
Gross Profit
Net income
Net income
Net income
1
MODULE 4 TIME VALUE OF MONEY
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Future value: 𝐹𝑉 = 𝑃𝑉 × (1 + 𝑟)𝑇
•
Present value: 𝑃𝑉 = (1+𝑟)𝑇
•
𝑡
Net present value: 𝑁𝑃𝑉 = 𝐶0 + ∑𝑇𝑡=1 (1+𝑟)
𝑡
•
The internal rate of return (IRR) has to satisfy the following equation:
𝐹𝑉
𝐶
0 = 𝐶0 +
𝐶1
𝐶2
𝐶3
𝐶𝑇
+
+
+
⋯
+
(1 + 𝐼𝑅𝑅)𝑇
1 + 𝐼𝑅𝑅 (1 + 𝐼𝑅𝑅)2 (1 + 𝐼𝑅𝑅)3
𝑟
•
Effective annual rate: 𝐸𝐴𝑅 = (1 + )𝑚 − 1
•
Future value based on continuous compounding: 𝐹𝑉 = 𝑃𝑉 × 𝑒 𝑟𝑇
•
Perpetuity: 𝑃𝑉 = 𝑟
•
Growing perpetuity: 𝑃𝑉 = 𝑟−𝑔
•
Annuity: 𝑃𝑉 = 𝑟 [1 − (1+𝑟)𝑡 ]
•
Growing annuity: 𝑃𝑉 = 𝑟−𝑔 [1 − ( 1+𝑟 )𝑡 ]
𝑚
𝐶
𝐶
𝐶
1
𝐶
1+𝑔
2