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Finance Formula Sheet

PV 

FV n 1  r 

FV  PV 1  r 

n

1   1 n   PV A  CF   1  r     r  1 r n 1 FV A  CF        r  

PV p 

Ps 

CF r

Div0 1  g  rs  g m

APR   EAR   1   1 m   n m

r   FV  PV  1   m

1   n m  1   r    PV A  CF    1  m     r   m   n m   r    1   1 FV A  CF    m   r     m

 FV  r   PV 

1 n

1

Finance Formulas, Page 1 of 3

n

Expected return of a portfolio: E  rp    wi E  ri  i 1

Variance of a 2-asset portfolio:  2p  w12 12  w22  22  2w1w212 Variance of a 3-asset portfolio:  2p w12 12  w22 22  w32 32  2 w1w2 12  2 w1w3 1 3  2 w 2w 3 23 Correlation coefficient between series 1 and 2: 1,2  n

Covariance between time series x and y:  x , y  n

Variance of asset x:  2x 

Beta of security i = i 

x  x

x

i

1,2  1 2  x  yi  y 

i 1

n 1

2

i

i 1

n 1

Beta of security i =  i  i, m 

i , or m

 i ,m = covariance between returns of i and the market (m) ÷ variance of m  m2

Expected return on equity (stock) = E  rS   rf   E  rm   rf  , also known as the CAPM or, alternatively:

E  rS  

D1  g = dividend yield plus expected growth P0

Return on Assets =

ROE 

Net Income Total Assets

Net Income Shareholders' Equity

ROE = Profit Margin  Asset Turnover  Equity Multiplier

ROE = ROA  equity multiplier ROE 

Net Income Sales Total Assets   Sales Total Assets Shareholders' Equity

Finance Formulas, Page 2 of 3

Gross Margin =

Gross Profit (EBITDA) Sales

Operating Margin =

Operating Income (EBIT) Sales

Net Profit Margin =

Net Income Sales

 Debt   Preferred   Stock  WACC    rD  1  Tc      rP     rs   Tot Capital   Tot Capital   Tot Capital 

Value of Operations 

FCF1 FCF2 FCFN    1 2 1 WACC  1 WACC  1 WACC  N

 FCFN  1  g     WACC  g   1 WACC  N

or: 

Value of Operations =  t 1

FCF

1 WACC 





FCF1

1WACC 

1



FCF2

1WACC 

2

 

FCF

1WACC 



Total Value of the Firm = Value of Operations + Value of Non-operating Assets Total Operating Capital = Net operating working capital (NOWC) + B.V. of Operating Long-Term Assets NOWC = (Cash + Account Receivable + Inventory) − (Accounts Payable + Accruals) Return on Invested Capital =

NOPAT Total Invested Capital

NOPAT = EBIT(1 − tax rate) Free Cash Flow = NOPAT − Net investment in operating assets Market Value Added (MVA) = Market Value of the Firm's Securities – Total Capital Invested or, depending on the inputs available to you, a good approximation is: MVA = (Market Value of Debt + Equity) – (Book Value of Debt, Equity and Preferred Stock) Economic Value Added (EVA) = NOPAT – (WACC × Total Capital) or, more conceptually: EVA = NOPAT – After-Tax Dollar Cost of Capital Used to Support Operations Finance Formulas, Page 3 of 3...