Financial Formulas - Cpa

Front 1

Current ratio

Back 1

(Current assets)/(Current liabilities)

Liquidity

Front 2

Quick ratio

Back 2

(Current assets less inventory)/(Current liabilities)

Liquidity

Front 3

Net working capital

Back 3

(Current assets) - (Current liabilities)

Liquidity

Front 4

Debt to asset ratio

Back 4

(Total debt)/(Total assets)

Debt

Front 5

Debt to equity ratio

Back 5

(Long-term debt)/(Stockholders' equity)

Debt

Front 6

Times interest earned ratio

Back 6

EBIT/(required interest payments)

Coverage

Front 7

Inventory turnover

Back 7

Sales/(Average inventory)

Efficiency

Front 8

Average age of inventory (days sales in inventory)

Back 8

(Average inventory)/(Sales per day)

Efficiency

Front 9

Average collection period (days sales outstanding)

Back 9

(Average accounts receivable)/(Sales per day)

Efficiency

Front 10

Asset turnover

Back 10

Sales/(Total assets)

Efficiency

Front 11

Payables turnover

Back 11

COGS/(Average payables)

Efficiency

Front 12

Gross margin

Back 12

(Sales - COGS)/Sales

Profitability

Front 13

Operating margin

Back 13

EBIT/Sales

Profitability

Front 14

Net margin

Back 14

(Net income)/(Sales)

Profitability

Front 15

Return on assets (simple form)

Back 15

(Net income)/(Total assets)

Profitability

Front 16

Return on assets (two variations)

Back 16

(Net income/Sales) x (Sales/Assets)

(Net margin) x (Asset turnover)

Front 17

Return on equity (simple form)

Back 17

(Net income)/(Stockholders' equity)

Profitability

Front 18

Return on equity (two variations)

Back 18

(Net income/Sales) x (Sales/Assets) x (Assets/Equity)

(Net margin) x (Asset turnover) x (Equity multiplier)

Front 19

Cash flow (when making estimates using capital budgeting)

Back 19

(Net income) + (Non-cash expenses)

Front 20

Accounting rate of return (ARR)

Back 20

(Average cash flow)/(Average investment)

Front 21

Net present value (NPV)

Back 21

(PV of estimated cash flows) - (PV of investment)

Front 22

Benefit cost ratio

Back 22

(PV of estimated cash flows)/(PV of investment)

Front 23

Internal rate of return (IRR)

Back 23

Rate such that (PV of estimated cash flows) = (PV of investment)

Front 24

Economic value added (EVA)

Back 24

(Net operating profit after taxes) - [(Capital in dollars x (Cost of capital)]

Front 25

Market value added (MVA)

Back 25

(Market value of equity) - (Book value of equity)

Front 26

Cost of long-term debt

Back 26

(Pretax cost) x (1 - tax rate)

Front 27

Cost of preferred stock

Back 27

(Dividend per share)/(Current price per share)

Front 28

Cost of retained earnings (3 methods)

Back 28

Capital asset pricing model (CAPM): (Risk-free rate) + {(Beta) x [(Return on the market) - (Risk-free rate)]}

Bond yield plus risk premium: (Cost of firm's long-term bonds) + (Equity risk premium)

Dividend discount model: (D1/Market price per share) + g, where D1 = next period's forecasted dividend, and g = forecasted growth rate in dividends and earnings

Front 29

Cost of common stock

Back 29

[D1/(Market price per share - flotation cost per share)] + g, where D1 = next period's forecasted dividend, and g = forecasted growth rate in dividends and earnings

Front 30

Cash conversion cycle

Back 30

(Average inventory age) + (Average A/R age) - (Average A/P age)

Front 31

Cash turnover

Back 31

365/(Cash conversion cycle)

Front 32

Minimum cash balance

Back 32

(Estimated annual cash expenditures)/(Cash turnover)

Front 33

Opportunity cost of holding minimum cash balance

Back 33

(Minimum cash balance) x (Cost of capital)

Front 34

Economic order quantity (EOQ)

Back 34

Square root of [2 x (# of units used annually) x (fixed order cost)/(variable cost of carry per unit)]

Front 35

Reorder point

Back 35

[(Shipping time) x (Daily usage)] + (Safety stock)

Front 36

Nominal interest rate (in terms of real interest rate and expected inflation rate)

Back 36

[(1 + real rate) x (1 + inflation rate)] - 1

Front 37

APR

Back 37

(Periods per year) x (Stated rate per period)

Front 38

Financial leverage ratio

Back 38

(Change in net income)/(Change in EBIT)

Leverage

Front 39

Operating leverage ratio

Back 39

(Fixed costs)/(Total costs)

Leverage

Front 40

Value of preferred stock investment

Back 40

D/K

(Dividend)/(Required rate of return)

Front 41

Value of bond investment

Back 41

(PV of interest payments) + (PV of face value at maturity)

Front 42

Value of common stock investment: 3 methods

Back 42

Constant growth dividend discount model

Supernormal growth dividend discount model

P/E model

Front 43

Value of common stock investment: Constant growth DDM

Back 43

D1/(K-G)

(Next period's forecasted dividend)/[(Required rate of return) - (Forecasted growth rate)]

Front 44

Value of common stock investment: P/E model

Back 44

[EPS x (payout rate)]/(K-G)

Front 45

Current yield on bond

Back 45

(Coupon payment)/(Current price of bond)

Front 46

Firm's sustainable growth rate in EPS

Back 46

ROE x (retention rate)