Evaluation of Financial Policy

GBA 645

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 Liabilities

Current Assets - Inventories

Current Liabilities

Cash Ratio

Cash
Current Liabilities

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 Depreciation
Interest

Fixed Charge Coverage Ratio

Equity Multiplier

Total Assets
Equity

EBIT Lease Pmt.

Sinking Funds
Interest Lease Pmt.
1T
or

EM 1

Total Assets Turnover

Sales
Total Assets

Fixed Assets Turnover

Sales
Net Fixed Assets

Inventory Turnover

1
1

D
TA

Sales
Cost of Goods Sold
OR
Inventory
Inventory

ACP or DSO

Receivables
Sales
365

Profit Margin (ROS)

Net Income
Sales

ROA

Net Income
Total Assets

ROE

Net Income
Common Equity

Return on Capital

Net Income Interest Preferred Dividnd

Debt Common Equity Preferred Stock

Basic Earnings Power

Earnings per Share

EBIT
Total Assets

Net Income
No. Shares Outstanding

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)

Sustainable Growth Rate

ROE * b
1 - (ROE * b)

Earnings Retention Ratio = b = 1 Dividend Payout Ratio = 1- DIV/NI

FV PV (1

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

(1 r ) t 1
C * FVIFAr , t
r

FVA C *

C * PVIFAr , t
t
r r * (1 r )

PVA C *

PVPerpetuity

C
r

(1 r ) t 1
* (1 r ) C due * FVIFAr , t * (1 r )
r

FVA C due *

1
FV
Bond Value C *

t
r r * (1 r )
(1 r ) t
1

1
PVA C due *
* (1 r ) C due * PVIFAr , t * (1 r )
t
r r * (1 r )

(1+R) = (1+r)*(1+h)

Coupon
FV
Coupon
Current Yield
VB
Coupon Rate

1
1
FV

t
(1 YTM ) t
YTM YTM * (1 YTM )

VB C *

P0
P0

D1
1

(1 r )
D1
(1 r )

D2
(1 r )

D2
(1 r )

D3
(1 r ) 3
D3
(1 r )

........
.....

D
r
D1
P0
rg
D
r 1g
P0
P0

Dn D0 * (1 g ) n

NPV
t 1

CFt
(CF0 )
(1 r ) t

CFt

(1 IRR)
t 1

PBP t

PI

(CF0 ) 0

Last Negative Cum. CF

CFt 1

CFt

(1 r )
t 1

CF0

Dn
(1 r )

Dn 1
1
*
n
r g c (1 r )

Net Income
t 1

ARR

n
Beginning Value Investment Ending Value Ivestment
2
n

COFt

(1 r )
t o

CIF * (1 r )

n t

t 1

(1 MIRR) n

Operating Cycle = Inventory Period + Accounts Receivable Period

Cash Cycle = Operating Cycle Accounts Payable Period
Inventory Turnover

Inventory Period

Cost of Goods Sold

Average Inventory

365
Inventory Turnover

Receivable Turnover

Credit Sales
Average Accounts Receivable

Receivable Period

365
Receivable Turnover

Payable Turnover

Cost of Goods Sold

Average Payable

Payable Period

Average

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
Pv
FC D
Q Accounting BEP
Pv
FC
QCash BEP
Pv
FC OCF *
Q Financial BEP
Pv
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

R
t 1

VAR ( R )

2
2
(
R

R
)

(
R

R
)

.........

(
R

R
)2
1
2
T

T 1

Standard Deviation or SD(R)

VAR(R)

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

R = E(R) + U
n

E ( R) Pr . s * Rs
s 1

2 Pr .s * [ Rs E ( R )] 2
s 1

Pr * [ R

s 1

E ( R )]2

p W j * j
j 1

W A WB ..... W N 1

Slope

RE

E(R j ) R f

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

RE R f E * ( RM R f )
RP

D
P0

E
P
D
* RE * RP
* R D * (1 t c )
V
V
V
V EPD
WACC

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 Outstanding

Number of Shares Outstanding

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 RD ) * D / E
D

L U 1 (1 T )
E

EBIT K d D (1 T )
Ks

V SD
V D0
P
n0
n1 n0

Modified Accelerated Cost Recovery System

Property Class
Year
3-Year
5-Year
7-Year
1
33.33%
20.00%
14.29%
2
44.44%
32.00%
24.49%
3
14.82%
19.20%
17.49%
4
7.41%
11.52%
12.49%
5
11.52%
8.93%
6
5.76%
8.93%
7
8.93%
8
4.45%

D
P

(1 Tc )(1 Ts )
Vl Vu 1
D
(1 Td )

DPO = Dividend Net Income

Dividend Yield = Dividend per share Price per share