Evaluation Of Financial Policy

Evaluation of Financial Policy FRL 440

Formula Sheet Prepared by P. Sarmas

Average Tax Rate =

Tax Liability Taxable Income

Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders Operating Cash Flow - ∆ Net Working Capital - Net Capital Spending Cash Flow from Assets

Interest Paid Dividend Paid - Net New Borrowing - Net New Equity Cash Flow to Creditors Cash Flow to Stockholders

EBIT + Depreciation - Taxes Operating Cash Flow

Ending Net Fixed Assets - Beginning Net Fixed Assets + Depreciation . Net Capital Spending

Ending Net Working Capital (CA – CL) - Beginning Net Working Capital (CA-CL) Change in Net Working Capital Ending L.T. Debt - Beginning L.T. Debt Net New Borrowing

Current Ratio =

Quick Ratio =

Ending Equity - Beginning Equity - Addition to Retained Earnings Net New Equity

Current Assets Current Liabilitie s

Current Assets - Inventorie s Current Liabilitie s

Cash Ratio =

Cash Current Liabilitie s

Total Debt Ratio =

Total Debt Total Assets - Total Equity = Total Assets Total Assets

Debt - to - Equity Ratio =

Total Debt Total Equity

Time Interest Earned =

EBIT Interest

Cash Coverage Ratio =

EBIT + Depreciati on Interest

Fixed Charge Coverage Ratio =

Equity Multiplier =

Total Assets Equity

EBIT + Lease Pmt. Sinking Funds Interest + Lease Pmt. + 1−T or

EM = 1 +

Total Assets Turnover =

Sales Total Assets

Fixed Assets Turnover =

Sales Net Fixed Assets

Inventory Turnover =

D = E

1 1−

D TA

Sales Cost of Goods Sold OR Inventory Inventory

ACP or DSO =

Receivable s Sales 365

Profit Margin (ROS) =

ROA =

Net Income Total Assets

ROE =

Net Income Common Equity

Return on Capital =

Net Income Sales

Net Income + Interest + Preferred Dividnd Debt + Common Equity + Preferred Stock

Basic Earnings Power =

Earnings per Share =

EBIT Total Assets

Net Income No. Shares Outstandin g

Price - Earnings Ratio =

Market Price per Share EPS

Dividend Payout Ratio = Dividends ÷ Net Income ROADuPont = Profit Margin * Total Assets t/o Market Value - Book Value Ratio =

Market Price per Share Book Value per Share

ROEDuPont = Profit Margin * Total Assets t/o * Equity Multiplier Internal Growth Rate =

ROA * b 1 - (ROA * b)

Sustainabl e Growth Rate =

ROE * b 1 - (ROE * b)

Earnings Retention Ratio = b = 1 – Dividend Payout Ratio = 1- DIV/NI FV = PV (1 + r ) t = PV * FVIF r , t

PV =

FV (1 + r ) t

FV = PV (1 +

PV =

= FV * PVIF r , t

r m *t ) = PV * FVIF r , mt m m

FV = FV * PVIF r r m *t , mt m (1 + ) m

EAR = (1 +

r m ) −1 m

FV = PV * e r *t PV = FV * e −r *t

(1 + r ) t −1 FVA = C *   = C * FVIFA r , t r  

1  1 PVA = C *  −  = C * PVIFA r , t t  r r * (1 + r ) 

PV Perpetuity =

C r

 (1 + r ) t − 1 FVA = Cdue *   * (1 + r ) = C due * FVIFA r , t * (1 + r ) r  

1  1 PVA = C due *  − * (1 + r ) = C due * PVIFA r , t * (1 + r ) t  r r * (1 + r ) 

Reminder:

In the case of frequent compounding or discounting, divide the nominal rate (APR) by “m” and multiply period by “m”. “m” is number of times interest is compounded/discounted in one period. Also, annuity interval must match the frequency (m) of compounding or discounting.

1  1 FV Bond Value = C *  − + t  r r * (1 + r )  (1 + r ) t 

(1+R) = (1+r)*(1+h) Coupon FV Coupon Current Yield = VB Coupon Rate =

 1  1 FV VB = C *  − + t YTM * (1 + YTM )  (1 + YTM ) t YTM

P0 = P0 =

D1 1

(1 + r ) D1

(1 + r )1

+ +

D2 (1 + r )

2

D2 (1 + r ) 2

+ +

D3 (1 + r ) 3 D3 (1 + r ) t

D r D1 P0 = r−g D r= 1 +g P0 P0 =

Dn = D0 * (1 + g ) n

n

NPV = ∑ t =1

n

CFt + (CF0 ) (1 + r ) t

CFt

∑ (1 + IRR ) t =1

t

+ (CF0 ) = 0

+ ........ + ..... +

 Dn +1 1  + *   (1 + r ) n  r − g c (1 + r ) n  Dn

PBP = t +

CFt

n

PI =

Last Negative Cum . CF CF t +1

∑ (1 + r ) t =1

t

CF0

n

∑ Net Income t =1

ARR =

n Beginning Value Investment + Ending Value Ivestment 2 n

COFt = ∑ t t =o (1 + r ) n

t

∑ CIF t =1

t

* (1 + r ) n −t

(1 + MIRR ) n

Operating Cycle = Inventory Period + Accounts Receivable Period Cash Cycle = Operating Cycle – Accounts Payable Period

Cost of Goods Sold Average Inventory

Inventory

Turnover

=

Inventory

Period =

365 Inventory Turnover

Receivable

Turnover

Receivable

Period =

Payable Turnover

Payable

Period =

Average

=

=

=

Credit Sales Average Accounts Receivable

365 Receivable Turnover Cost of Goods Sold Average Payable

365 Payable Turnover

Beginning + End 2

Operating Cash Flow = EBIT + Depreciation – Taxes Operating Cash Flow = (Sales – OC – Depreciation)*(1-T) + Depreciation Operating Cash Flow = Net Income + Depreciation Operating Cash Flow = (Sales – OC)*(1 – T) + T*Depreciation Book Value of Asset = Original Cost – Accumulated Depreciation Straight − Line Depreciati on =

Original Cost − Salvage Value n

VC = Q*v TC = VC + FC NI = (S – FC – VC – D)*(1-T)

FC +OCF P −v FC + D Q Accounting BEP = P −v FC QCash BEP = P −v FC +OCF * Q Financial BEP = P −v FC DOL =1 + OCF =

Q general

Q( P − v) Q ( P − v) − FC Q ( P − v) − FC EBIT DFL = = Q ( P − v) − FC − Int EBIT − Int Q( P − v) DTL = DCL = DOL * DFL = Q ( P − v) − FC − Int DOL =

Capital Gain Yield =

Pt +1 − Pt Pt

T

−

R=

∑R t =1

t

T

VAR ( R ) =

− − − 1   ( R1 − R ) 2 + ( R2 − R ) 2 + ......... + ( RT − R ) 2   T −1  

Standard Deviation or SD(R) = VAR(R)

n

E ( R) = ∑ Pr .s * Rs s =1

n

σ 2 = ∑ Pr .s * [ Rs − E ( R )]2 s =1

σ = σ2 =

n

∑ Pr * [ R s =1

s

s

− E ( R )] 2

E(Rp) = WA*E(RA) + WB*E(RB) R = E(R) + U

n

β p = ∑W j * β j j =1

W A +WB + ..... + W N = 1

E(RA) = Rf + [E(RM) – Rf]*β Slope =

RE =

A

E(R j ) − R f

βj

D * (1 + g ) D1 +g = 0 +g P0 P0

R E = R f + β E * ( RM − R f ) RP =

D P0

E P D WACC =   * R E +   * RP +   * R D * (1 − t c ) V  V  V  V =E+P+D

WACC = WE*RE + WP*RP + WD*RD*(1-tc) WE + WP + WD = 1

YTM approximate =

FV − P0 n FV + 2 P0 3

Coupon +

EPS =

(Revenue - Total Variable Costs - Fixed Costs - Interest) * (1 - t) ( EBIT − Interest ) * (1 − t ) = Number of Shares Outstandin g Number of Shares Outstandin g

ROE =

(Revenue - Total Variable Costs - Fixed Costs - Interest) * (1 - t) ( EBIT − Interest ) * (1 − t ) = Equity Equity

Vu =

EBIT (1 − T ) Ru

Vl =

( EBIT − Int )(1 − T ) WACC VL = VU VL = VU + Tc * D RE = R A + ( R A − R D ) * D / E D  β L = βU 1 + (1 − T )  E 

S=

( EBIT

− K d D ) (1 − T ) Ks

V =S +D V − D0 P= n0 D P  (1 − Tc )(1 − Ts )  Vl = Vu + 1 + ×D (1 − Td )   n1 = n0 −

DPO = Dividend ÷ Net Income Dividend Yield = Dividend per share ÷ Price per share Modified Accelerated Cost Recovery System Year 1 2 3 4 5 6 7 8

Property Class 3-Year 5-Year 33.33% 20.00% 44.44% 32.00% 14.82% 19.20% 7.41% 11.52% 11.52% 5.76%

7-Year 14.29% 24.49% 17.49% 12.49% 8.93% 8.93% 8.93% 4.45%