Principles of Finance (WGU) - formulas

Change in Retained Earnings

Net Income - Dividends

Gross Profit

Revenue - Cost of Goods sold or Cost of Services

Earnings Before Interest and Taxes (EBIT)

Gross Profit - Operating Expenses

Net Income

Dividends + Change in Retained Earnings

New Retained Earnings

Old Retained Earnings + Change in Retained Earnings

New Retained Earnings, long version

Old Retained Earnings + Net Income - Dividends

change in cash for the year

cash flows from operations + cash flows from investing + cash flows from financing

Dividends

(Old Retained Earnings + Net Income) - New Retained Earning

Current Ratio

Current Assets / Current Liabilities

Quick Ratio

current assets - inventory / current liabilities

Average Collection Period

accounts receivables / daily credit sales

Accounts Receivables Turnover

credit sales / accounts receivables

inventory turnover

cost of goods sold / inventory

fixed assets

total assets minus current assets

total asset turnover

sales / total assets

fixed asset turnover

sales / fixed assets

Operating income return on investment

operating income / total assets

debt ratio

total debt / total assets

times interest earned

EBIT / interest expense

Return on Assets

net income / total assets

return on equity

net income / equity

gross margin

gross profit / sales

operating margin

EBIT / Sales

net margin

net income / sales

return on equity

net margin
total asset turnover
leverage multiplier

return on equity long version

(net income / sales)
(total sales / total assets)
(assets / equity)

free cash flow to the firm (FCFF)

EBIT - cash tax payments + depreciation - capital expenditure changes - increases to net working capital

net working capital

current assets - current liabilities

capital expenditures

gross property + plant + equipment

free cash flow to equity (FCFE)

Net income + depreciation - capital expenditure changes - increase to net working capital + increase to long term debt

Net fixed assets

Gross fixed assets - accumulated depreciation

Cash flow from operations

Net income + non cash expenses (depreciation) + decrease in operating assets accounts (other than cash) - increase in operating asset accounts + increase in operating liability accounts (othrr than notes payable) - decrease in operating liability accounts

Cash flow from investing

- increase in gross pp&e + decrease in gross pp&e or if net pp&e is used then its the change in net pp&e + depreciation expense

Leverage multiplier

Assets / Equity

current yield of bond

annual coupon payment / current market value

bond coupon payment

interest rate * face value

bond duration

measure of the interest rate sensitivity of a bond

what is the selling price of a bond if the coupon rate = discount rate

selling price will be equal to the par value

Present value of a perpetuity

Payment / Discount Rate

Effective yield

(Future value / present value) - 1

value of preferred stock

annual fixed dividend / discount rate or required rate of return

value of singe holding period model

value today = (value in 1 year + dividends) / (1 + required rate of return)

Gordon growth model value of common stock (constant dividend growth model)

Value today = (dividend paid now (1+constant growth rate) / (required rate of return - constant growth rate)

EVA

NOPAT - (WACC * Costly Capital)
EVA means Economic Value Added

NOPAT

0

After-tax cost of debt on a percentage basis

Interest % * (1-tax rate)
10% interest, in 34% tax bracket means
.10*(1-.34) = .066 meaning instead of paying 10% it's only 6.6% because you decreased your taxable income.

WACC

(C/V)
Kcs + (D/V)
Kd(1-t) + (P/V) * Kp

V (value of capital)

C + D + P ( C and P = cost per share
number of shares), (D = face value
market value percentage)

CAPM (capital asset pricing model)

Kcs = Rrf + B(Rm-Rrf) where Rrf = risk free rate, B = beta, Rm = return on the market, Rm-Rrf = risk premium

Vallue cost of preferred stock

Kps = Dividend / NPps (net price perferred stock)
NPps = price per share - flotation costs

NPV of a project

net present value = present value of all cash flows from a project - initial outlay

Profitability Index

present value of all cash flows from a project / initial outlay

Value of common stock for a single holding period

Value now = value at time 1 + dividend paid in time 1 / (1 + required rate of return or discount rate)

value of common stock - 2 stage growth model

PV(of stage 1 growth) + PV(of stage 2 growth)

Change in Retained Earnings

Net Income - Dividends

Gross Profit

Revenue - Cost of Goods sold or Cost of Services

Earnings Before Interest and Taxes (EBIT)

Gross Profit - Operating Expenses

Net Income

Dividends + Change in Retained Earnings

New Retained Earnings

Old Retained Earnings + Change in Retained Earnings

New Retained Earnings, long version

Old Retained Earnings + Net Income - Dividends

change in cash for the year

cash flows from operations + cash flows from investing + cash flows from financing

Dividends

(Old Retained Earnings + Net Income) - New Retained Earning

Current Ratio

Current Assets / Current Liabilities

Quick Ratio

current assets - inventory / current liabilities

Average Collection Period

accounts receivables / daily credit sales

Accounts Receivables Turnover

credit sales / accounts receivables

inventory turnover

cost of goods sold / inventory

fixed assets

total assets minus current assets

total asset turnover

sales / total assets

fixed asset turnover

sales / fixed assets

Operating income return on investment

operating income / total assets

debt ratio

total debt / total assets

times interest earned

EBIT / interest expense

Return on Assets

net income / total assets

return on equity

net income / equity

gross margin

gross profit / sales

operating margin

EBIT / Sales

net margin

net income / sales

return on equity

net margin
total asset turnover
leverage multiplier

return on equity long version

(net income / sales)
(total sales / total assets)
(assets / equity)

free cash flow to the firm (FCFF)

EBIT - cash tax payments + depreciation - capital expenditure changes - increases to net working capital

net working capital

current assets - current liabilities

capital expenditures

gross property + plant + equipment

free cash flow to equity (FCFE)

Net income + depreciation - capital expenditure changes - increase to net working capital + increase to long term debt

Net fixed assets

Gross fixed assets - accumulated depreciation

Cash flow from operations

Net income + non cash expenses (depreciation) + decrease in operating assets accounts (other than cash) - increase in operating asset accounts + increase in operating liability accounts (othrr than notes payable) - decrease in operating liability accounts

Cash flow from investing

- increase in gross pp&e + decrease in gross pp&e or if net pp&e is used then its the change in net pp&e + depreciation expense

Leverage multiplier

Assets / Equity

current yield of bond

annual coupon payment / current market value

bond coupon payment

interest rate * face value

bond duration

measure of the interest rate sensitivity of a bond

what is the selling price of a bond if the coupon rate = discount rate

selling price will be equal to the par value

Present value of a perpetuity

Payment / Discount Rate

Effective yield

(Future value / present value) - 1

value of preferred stock

annual fixed dividend / discount rate or required rate of return

value of singe holding period model

value today = (value in 1 year + dividends) / (1 + required rate of return)

Gordon growth model value of common stock (constant dividend growth model)

Value today = (dividend paid now (1+constant growth rate) / (required rate of return - constant growth rate)

EVA

NOPAT - (WACC * Costly Capital)
EVA means Economic Value Added

NOPAT

0

After-tax cost of debt on a percentage basis

Interest % * (1-tax rate)
10% interest, in 34% tax bracket means
.10*(1-.34) = .066 meaning instead of paying 10% it's only 6.6% because you decreased your taxable income.

WACC

(C/V)
Kcs + (D/V)
Kd(1-t) + (P/V) * Kp

V (value of capital)

C + D + P ( C and P = cost per share
number of shares), (D = face value
market value percentage)

CAPM (capital asset pricing model)

Kcs = Rrf + B(Rm-Rrf) where Rrf = risk free rate, B = beta, Rm = return on the market, Rm-Rrf = risk premium

Vallue cost of preferred stock

Kps = Dividend / NPps (net price perferred stock)
NPps = price per share - flotation costs

NPV of a project

net present value = present value of all cash flows from a project - initial outlay

Profitability Index

present value of all cash flows from a project / initial outlay

Value of common stock for a single holding period

Value now = value at time 1 + dividend paid in time 1 / (1 + required rate of return or discount rate)

value of common stock - 2 stage growth model

PV(of stage 1 growth) + PV(of stage 2 growth)