8006FMGT Financial Management

1
8006FMGT Financial Management
Formula Sheet
Module 2
1. Current ratio =
Current assets
Current liabilities
2. Quick ratio (or acid-test ratio) = Current assests − Inventory
Current liabilities
3. Average collection period =
Accounts receivable
Annual credit sales/365 days =
Accounts receivable
Daily credit sales
4. Accounts receivable turnover = Annual credit sales
Accounts receivable
5. Inventory turnover = Cost of goods sold
Inventory
6. Debt ratio = Total liabilities
Total assets
7. Interest coverage ratio = Operating profit or EBIT
Interest expense
8. Total asset turnover =
Sales
Total assets
9. Fixed asset turnover = Sales
Net property,plant and equipment
10. Gross profit margin =
Gross profit
Sales
11. Operating profit margin (OPM) =
Operating profit or EBIT
Sales
12. Net profit margin =
Net profit
Sales
13. Return on assets (ROA) =
Operating profit or EBIT
Total assets
14. Return on assets (ROA) = Operating profit margin(OPM)×Total asset turnover (TATO)
15. Return on assets (ROA) =
Operating profit or EBIT
Sales
×
Sales
Total assets
=
Operating profit or EBIT
Total assets
16. Return on equity (ROE) =
Net profit
Ordinary equity
17. Return on equity (ROE) =
Net profit
Equity
=
Net profit
Sales
×
Sales
Total assets
×
Total assets
Ordinary equity
18. Price– earnings (PE) ratio =
Market price per share
Earnings per share
19. Market– to– book ratio =
Market price per share
Book value per share
=
Market price per share
Ordinary shareholders
′equity
Ordinary shares outstanding ⁄2
Module 3
20. 𝑂𝑃 = ( 𝑃⏟×𝑄
Total revenue
) − [ (⏟𝑉 × 𝑄 )
Total variable
cost
+ 𝐹⏟
Total fixed
cost ]
21. 𝑄Accounting break-even =
𝐹
𝑃⏟−𝑉
Contribution margin
per unit
22. 𝑄Cash break-even =
Fixed operating cost other than depreciation
𝑃⏟−𝑉
Contribution margin
per unit
23. Operating cycle = Inventory conversion period + Average collection period
24. Accounts payable deferral period =
365
Cost of goods sold÷Accounts payable
25. Cash conversion cycle = Operating cycle − Accounts payable deferral period
26. Inventory conversion period =
365
Inventory turnover ratio
27. Inventory turnover ratio =
Cost of goods sold
Inventory
28. Average collection period =
Accounts receivable
Daily credit sales =
Accounts receivable
Annual credit sales⁄365
29. Interest = Principal×Rate×Time
30. Annual percentage rate (APR) =
Interest
Principal×Time
=
Interest
Principal
×
1
Time
31. Cost of forgoing
a cash discount =
Cash discount %
1−Cash discount %
×
365
(
N. of days until full
payment must be made)−(
N. of days until cash
discount is lost )
Module 4
32. 𝐹𝑉𝑛 = 𝑃𝑉 (1 + 𝑖)
𝑛 ⏟
Future value
interest factor
33. 𝐹𝑉𝑛 = 𝑃𝑉 (1 +
𝑖
𝑚
)
𝑚×𝑛
34. Interest earned = Beginning value×Interest rate
35. 𝑃𝑉 = 𝐹𝑉𝑛 [
1
(1+𝑖)𝑛
] ⏟
Present value
interest factor
(PVIF)
=
𝐹𝑉𝑛
(1+𝑖)𝑛
36. 𝑃𝑉 = 𝐹𝑉𝑛 [
1
(1+
𝑖
𝑚
)
𝑚×𝑛]
37.
Annual percentage
rate (APR) = Interest rate per period×Compounding periods
38. Effective annual rate (EAR) = (1 +
Quoted annual rate
𝑚
)
𝑚
− 13
39. Periodic rate =
Quoted annual rate
𝑚
40. Future value of an annuity: 𝐹𝑉𝑛 = 𝑃𝑀𝑇 [
(1+𝑖)
𝑛−1
𝑖
] ⏟
Annuity future value
interest factor
41. Future value of an annuity (due): 𝐹𝑉𝑛 = 𝑃𝑀𝑇 [
(1+𝑖)
𝑛−1
𝑖
] (1 + 𝑖)
42. Present value of an annuity (due): 𝑃𝑉 = 𝑃𝑀𝑇 [
1−
1
(1+𝑖)𝑛
𝑖
] (1 + 𝑖)
43. Present value of a perpetuity: 𝑃𝑉 =
𝑃𝑀𝑇
𝑖
44. Present value of a growing perpetuity: 𝑃𝑉 =
𝑃𝑀𝑇period 1
𝑖−𝑔
45. Bond value = Interest[
1−
1
(1+𝑌𝑇𝑀)𝑛
𝑌𝑇𝑀 ] + Principal[
1
(1+𝑌𝑇𝑀)𝑛
]
46. Bond value
(semi-annual payments) = (
Interest
2
) [
1−
1
(1+
𝑌𝑇𝑀
2
)
2𝑛
𝑌𝑇𝑀
2
] + Principal[
1
(1+
𝑌𝑇𝑀
2
)
2𝑛]
47. Constant dividend growth rate model: 𝑉𝐸 =
𝐷0
⏞ ( 1+ 𝑔 )
𝐷1
𝑟𝐸−𝑔
=
𝐷1
𝑟𝐸−𝑔
48. Capital Asset Pricing Model (CAPM): 𝑟𝐸 = 𝑟𝑓 + 𝛽𝐸[𝐸(𝑟𝑀 − 𝑟𝑓)]
49. Retention rate (𝑏) = 1 −
𝐷1
𝐸1
50. Dividend payout ratio =
𝐷1
𝐸1
51. Rate of growth in dividends (𝑔) = 𝑏×ROE
52. Rate of growth in dividends (𝑔) = (1 −
𝐷1
𝐸1
) ×ROE
53. Value of
preference share =
Annual preference share dividend
Market’s required return on preference share =
𝐷𝑃
𝑟𝑃
Module 5
54. Cash
return
=
Ending
price +
Cash distribution
(dividend) −
Beginning
price
55. Rate of
return
=
Cash return
Beginning price
=
Ending
price +
Cash distribution
(dividend) −
Beginning
price
Beginning price
56. 𝐸(𝑟) = 𝑟1×𝑃𝑟(𝑟1
) + 𝑟2×𝑃𝑟(𝑟2
) + ⋯ + 𝑟𝑛×𝑃𝑟(𝑟𝑛
)
57. 𝜎
2 = [𝑟1 − 𝐸(𝑟)]
2×𝑃𝑟(𝑟1
) + [𝑟2 − 𝐸(𝑟)]
2×𝑃𝑟(𝑟2
) + ⋯ + [𝑟𝑛 − 𝐸(𝑟)]
2×𝑃𝑟(𝑟𝑛
)
58. 𝜎 = √𝜎
2 = √[𝑟1 − 𝐸(𝑟)]
2×𝑃𝑟(𝑟1
) + [𝑟2 − 𝐸(𝑟)]
2×𝑃𝑟(𝑟2
) + ⋯ + [𝑟𝑛 − 𝐸(𝑟)]
2×𝑃𝑟(𝑟𝑛
)
59. 𝐸(𝑟portfolio) = [𝑊1×𝐸(𝑟1
)] + [𝑊2×𝐸(𝑟2
)] + ⋯ + [𝑊𝑛×𝐸(𝑟𝑛
)]
60. 𝜎portfolio = √𝑊1
2𝜎1
2 + 𝑊2
2𝜎2
2 + 2𝑊1𝑊2𝜌1,2𝜎1𝜎24
61. Total risk = Systematic Risk + Unsystematic risk
62. 𝛽portfolio = 𝑊1𝛽1 + 𝑊2𝛽2 + ⋯ + 𝑊𝑛𝛽𝑛
63. 𝐸(𝑟portfolio) = 𝑟𝑓 + 𝑊𝑀[𝐸(𝑟𝑀) − 𝑟𝑓]
64. 𝐸(𝑟𝑖
) = 𝑟𝑓 + 𝛽𝑖
[𝐸(𝑟𝑀) − 𝑟𝑓]
Module 6
65. 𝑁𝑃𝑉 = 𝐶𝐹0 +
𝐶𝐹1
(1+𝑘)1 +
𝐶𝐹2
(1+𝑘)2 + ⋯ +
𝐶𝐹𝑛
(1+𝑘)𝑛
66. PI =
𝐶𝐹1
(1+𝑘)1+
𝐶𝐹2
(1+𝑘)2+⋯+
𝐶𝐹𝑛
(1+𝑘)𝑛
𝐶𝐹0
67. 𝐶𝐹0 +
𝐶𝐹1
(1+𝐼𝑅𝑅)1 +
𝐶𝐹2
(1+𝐼𝑅𝑅)2 + ⋯ +
𝐶𝐹𝑛
(1+𝐼𝑅𝑅)𝑛 = 0
Module 7
68. 𝑊𝐴𝐶𝐶 = 𝑘𝐷×(1 − 𝑇)×𝑤𝐷 + 𝑘𝑃×𝑤𝑃 + 𝑘𝐸×𝑤𝐸
69. Debt ratio =
Total liabilities
Total assets
70. Enterprise
value = (
Book value of
interest-bearing debtExcess
cash )

Net debt
+
Market value
of equity
71. Enterprise value = Net debt + Market value of equity
72. Debt to enterprise
value ratio =
Book value of
interest-bearing debt−
Excess
cash
(
Book value of
interest-bearing debt−
Excess
cash )+
Market value
of equity
=
Net debt
Enterprise value
73. Interest coverage ratio =
Operating profit or EBIT
Interest expense
74. Firm value =
Firm cash flow
𝑘𝑊𝐴𝐶𝐶
75. 𝑘𝑊𝐴𝐶𝐶 = (𝑘𝐷×
𝐷
𝑉
) + (𝑘𝐸×
𝐸
𝑉
)
76. 𝑘𝐸 = 𝑘Unlevered + (𝑘Unlevered − 𝑘𝐷) (
𝐷
𝐸
)
77. 𝑘𝐸 = 𝑘WACC + (𝑘WACC − 𝑘𝐷) (
𝐷
𝐸
)
78. Cash flow to a firm
with financial leverage =
Cash flow to the firm
without leverage +
Interest
tax shield
79. 𝑘𝐸 = 𝑘Unlevered equity + [(𝑘Unlevered equity − 𝑘𝐷) (
𝐷
𝐸
) ×(1 − 𝑇)]
80. 𝑘𝑊𝐴𝐶𝐶 = [𝑘𝑑
(1 − 𝑇)×
𝐷
𝑉
] + [𝑘𝐸×
𝐸
𝑉

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