FIN3403 Formulas

Total Debt =

Measures the amount (percent) of debt in a company’s capital structure

Total Liabilities (Debt)/Total Debt + Total Equity

Debt-to-equity =

Similar to total debt ratio but measures debt in a ratio to equity

Total Debt/Total Equity

Equity Multiplyer =

Measures total assets in ratio to equity

Total Assets/Total Equity

Long Term Debt =

Specifically measures how much long term debt a company has in comparison long term debt and equity

Long-Term Debt/Long-Term Debt + Total Equity

Times Interest Earned (TIE) =

This ratio measures how much operating income (EBIT) is generated for every dollar they have to make in interest payments

Generally speaking, a larger ratio is better because it means the firm is able to better cover their interest payments

EBIT/Interest Expense

Cash Coverage Ratio =

Similar to TIE ratio except that it uses EBITDA instead of EBIT to measure a firms ability to cover their interest payment

EBITDA aka EBIT+Depreciation/Interest

Inventory Turnover =

Measures how often inventory “turns over” in comparison to its COGS

COGS/Inventory

Days Sales in Inventory =

Measures how long inventory sits around until it is finally sold

Inventory/(COGS/365)

Receivables Turnover

Measures how many times a firm collects outstanding credit accounts and then re-loans the money

Sales/Accounts Receivable

Average Collections =

Measures how long (on average) it takes for a firm to collect their accounts receivable

A/R Balance/(Sales/365)

NWC Turnover =

Measures how much in sales can be generated per every $1 in NWC

Sales/Net Working Capital

Fixed Asset Turnover =

Measures how much in sales can be generated per every $1 in fixed assets

Sales/Net Fixed Assets or Sales/Net PP&E

Total Asset Turnover =

Measures how much in sales can be generated per every $1 in total assets

Sales/Total Assets

Net Profit Margin =

Measures how much in net income the company gets to keep for every $1 of sales generated

Net Income/Sales

Return on Assets =

Measures how much in net income can be generated using all of the firm’s assets

Net Income/Total Assets

Return on Equity =

Measures how much in net income can be generated per dollar of common equity

Net Income/Common Equity

DuPont Equation

ROE =

ROE and ROA can be related to one another using the DuPont Equation

ROA x Equity Multiplier

Profit Margin x Total Asset Turnover x Equity Multiplier

Net Income/Sales x Sales/Total Assets x Total Assets/Total Equity

Price to Earnings (P/E) Ratio =

Measures how much the market thinks your shares are worth in comparison to how much in earnings (net income) you generate

Current Market Price Per Share/Current Earnings Per Share

PEG Ratio =

P/E Ratio/Earnings Growth Rate (%)

Price-Sales Ratio =

Only used if P/E ratio is unhelpful (for example, if firm has negative earnings

Price Per Share/Sales Per Share

Market To Book Ratio =

Compares the market value of the firm’s investment to their costs

Current Market Price Per Share/Book Value Per Share

Tobin’s Q

Market Value of Assets/Replacement Cost of Assets

Enterprise Value to EBITDA =

Enterprise Value/EBITDA

Internal Growth Rate =

The maximum growth rate that a firm can sustain without any need for external funding

ROA x Retention Ratio/1-ROA x Retention Ratio

Sustainable Growth Rate =

The maximum growth rate that a firm can have without any need for external funding, while still maintaining a constant debt-to-equity ratio

ROE x Retention Ratio/1-ROE x Retention Ratio