Formula Exam 1

Net Working Capital

Net Working Capital = Total Current Assets - Total Current Liabilities

Market Value Added (MVA)

MVA = (P₀ × Shares Outstanding) - Book Value of Common Equity

Economic Value Added (EVA)

EVA = EBIT(1 - T) - [Total Capital - (A/P + Accruals)] × WACC

Net Cash Flow

Net Cash Flow = Net Income + Depreciation

Operating Cash Flow

Operating Cash Flow = EBIT(1 - T) + Depreciation

Free Cash Flow

Free Cash Flow = EBIT(1 - T) + Depreciation - (Change in Net FA + Depreciation) - Change in CA + Change in A/P + Accruals

NOPAT

NOPAT = EBIT(1 - T)

Current Ratio

Current Ratio = Current Assets / Current Liabilities

Quick Ratio (Acid Test Ratio)

Quick Ratio = (Current Assets - Inventories) / Current Liabilities

Inventory Turnover

Inventory Turnover = Sales / Inventories

Days Sales Outstanding (DSO)

DSO = Receivables / (Annual Sales / 365)

Fixed Assets Turnover

Fixed Assets Turnover = Sales / Net Fixed Assets

Total Assets Turnover

Total Assets Turnover = Sales / Total Assets

Debt to Total Capital Ratio

Debt to Total Capital Ratio = Total Debt / (Total Debt + Equity)

Total Liabilities to Assets Ratio

Total Liabilities to Assets Ratio = Total Liabilities / Total Assets

Debt to Equity Ratio

Debt to Equity Ratio = Total Debt / Equity

Times Interest Earned (TIE)

TIE = EBIT / Interest Charges

EBITDA Coverage

EBITDA Coverage = (EBITDA + Lease Payments) / (Interest + Principal Payments + Lease Payments)

Operating Margin

Operating Margin = EBIT / Sales

Profit Margin

Profit Margin = Net Income / Sales

Return on Total Assets (ROA)

ROA = Net Income / Total Assets

Return on Common Equity (ROE)

ROE = Net Income / Common Equity

Return on Invested Capital (ROIC)

ROIC = EBIT(1 - T) / Total Invested Capital

Basic Earning Power (BEP)

BEP = EBIT / Total Assets

Price/Earnings Ratio (P/E)

P/E = Price per Share / Earnings per Share

Price/Cash Flow

Price/Cash Flow = Price per Share / Cash Flow per Share

Book Value per Share

Book Value per Share = Common Equity / Shares Outstanding

Market/Book Ratio (M/B)

Market/Book Ratio = Market Price per Share / Book Value per Share

Extended Dupont Equation

ROE = ROA × Equity Multiplier

Du Pont Equation

ROA = Profit Margin × Total Assets Turnover

Equity Multiplier

EM = Total Assets / Common Equity

Nominal Interest Rate Formula

K = k* + IP + DRP + LP + MRP

k RF

Nominal Risk-Free Rate of Interest (k* + IP)

Pure Expectations Theory