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INCOME STATEMENT:
Income = Revenue – expenses
Taxes:
Average tax rate: tax bill / taxable income
CASH FLOW:
Cash flow from the firm’s assets = CF to the firm’s creditors + CF to equity investors
Cash flow to stockholders = dividends – [(common stock last year + APIS last year) – (common
stock begin + APIS begin)] (APIS: Additional paid-in surplus)
Cash flow = Operating cash flow - Capital spending - Addition to net working capital
Operating cash flow = earnings before interest and taxes + depreciation – taxes
Capital spending = Acquisitions of fixed taxes – sales of fixed taxes
Or Capital spending = Ending net fixed assets – beginning of fixed assets + depreciation
Addition to net working capital (change in net working capital) = net working capital last year –
net working capital begin
RATIO ANALYSIS
Current ratio = current assets / current liabilities
Quick ratio = Current assets – Inventory / Current liabilities
Total debt ratio = Total assets – Total equity / Total assets
[big picture ratio: for every dollar in assets, the company generated TAT in sales]
Total assets turnover (TAT) = Sales / Total assets
PROFITABILITY MEASURES
Profit margin = Net income / Sales
EBITDA margin = EBITDA / Sales
Capital intensity ratio = Total assets / Sales
Market-to-book ratio = Market value per share / Book value per share
where Book value per share = total equity / shares outstanding
Enterprise value = Market capitalization + Market value of interest bearing debt – Cash
External financial need (EFN) = Increment expected in assets - Increment expected in liabilities
and equity
Compound interest:
Future value of an investment: FV = Co x (1+r)^t;
[Co: cash to invest, r: rate of investment, t:periods]
Simple interest:
FVsimple = Co + (t x (Co x r))
Present value of Growing Perpetuity: PV = C / r – g ; [g: rate of growth per period, r: appropriate
discount rate]
Payback method:
Payback period = # of complete period + (Cost – cashflow1 – cashflown…) / cashflow next
period needed to complete investment
For annuity: Payback period = Cost / annual cash flow
Discounted payback period:
1. PV = Cashflow / (1+r)^t ; r: discount rate , t: period
2. Apply payback period method with the new cashflows.
Profitability index (PI) = PV of cash flows subsequent to initial investment / Initial Investment
*If PI > 1, accept it
Income before taxes (taxable income) = Sales revenue - Operating costs - Depreciation
Net income = Income before taxes – tax expense; (tax expense: tax rate x taxable income)
Total cash flow of investment = Cost asset + Opportunity cost + Change in net working capital
Cash flow for operations = Sales revenues + Operating cost + Taxes
Total cash flow of the project = Cash flow for operations + Total cash flow of investment
Salvage value:
If book value = 0: After-tax salvage value = Salvage value x (1 – tax rate)
Tax liability = tax rate x (sales price – book value)
After-tax salvage value = sales price – Tax liability
Also: OFC = [(Priceunit – Costunit) x Units – Fixed cost] x (1 – tax rate) + (Deprecia. x tax rate)
Revenues:
Number of assets sold per year = market share x market size per year
Annual sales revenues = Number of assets sold per year x Price per unit
Costs:
Variable cost per year = Variable cost per unit x Number of assets sold per year
Total cost before taxes per year = Variable cost per year + Fixed cost per year
Net accounting Profit = (Revenues – Variable cost -Fixed cost – Depreciation ) x (1 – tax rate
Contribution margin = Net income + Depreciation + Fixed costs
Or Contribution margin = Sales price – Variable cost
Equivalent annual cost (EAC) = Initial investment / T-year annuity factor at return tax
= Initial investment / PVIFA (r, T)
BOND VALUATION
Total Bond Value = Present value of face value + Annuity present value of coupons
Total Bond Value = F / (1+r)^T + C x PVIFA (r, T)
Promised yield (y) = (Price in one year / Current price of corporate bond) - 1
Aftertax yield tax on treasury bond = (1 – tax bracket) x treasury bond selling rate
STOCK VALUATION