Business Finance Formulas

Calculate the Cost of Common Stock

Cost of Equity = (Dividend/Price) + Growth Rate

Calculate the Value of Constant Growth Stock

P0 = D1/(r-g)

P0

Current Stock Price

D1

Dividend expected in next period

r

required rate of return

g

growth rate of dividends

Calculate the Expected Rate of Return

r = (D1/P0) + g

Calculate the Dividend Expected in the Next Period

(D0 x (1+g))

Calculate the Net Present Value

Discount Factor x Present Value of Cash Flows

t

time periods

Calculate the Cost of Debt

Kd = Interest Rate x (1 - Tax Rate)

Calculate the Cost of Equity

Ke = Rf + Beta x (Rm - Rf)

Kd

Cost of Debt

Ke

Cost of Equity

Beta

Beta of the Stock

Rf

risk-free rate

Rm

Market Return

Calculate the Weighted Average Cost of Capital

WACC = [(E/V) x Ke]+[(D/V)xKd]

E

equity

D

debt

V

total value (E+D)

Calculate the Present Value

PV = Future Cash Flow/(1+r)^n

Calculate the Payback Period

Initial Investment/Annual Cash Inflows

Calculate the Profitability Index

PI = PV/Initial Investment

Internal Rate of Return

IRR = (Future Value/Present Value)^(1/n)-1

Calculate the Contribution Margin

sales price per unit - variable cost per unit

Calculate the Return on Investment

ROI = Net Income/Investment Cost

Calculate Equity

Common Stock - Dividends + Revenue - Expenses

Calculate Assets

Liabilities + Equity

Calculate the Cash Payback

Cost of Investment / Net Annual Cash Flow

Accounting Rate of Return

net cash flow/(initial investment/2)