Business Finance Formulas

Total Debt Ratio

Total Debt / Total Assets

Total Debt

Current Liabilities + LongTerm Liabilities

Current Ratio

Current Assets / Current Liabilities

Current Assets

Total Assets - Net Fixed Assets

Current Liabilities

Total Debt - Total LongTerm Debt

Profit Margin

Net Income / Sales

EBT

EBIT - Interest

Net Income

EBT - T

Total Asset Turnover

Sales Revenue / Total Assets

Financial Leverage

Total Debt / Shareholder's Equity

Net Working Capital

Current Assets - Current Liabilities

Debt-Equity Ratio

Total Liabilities / Shareholders Equity

EAR

(1 + (APR / Compounding) ^ # of Compounds) - 1

What is the goal of a financial manager?

To maximize shareholder wealth, by maximizing share price

What is the Agency Problem?

A financial manager not maximizing shareholder wealth

Primary Markets

IPO, SEO, Bonds

Secondary Markets

Individual Sales

Liquidity

How quickly an asset can be converted to cash

Capital Structure

Mix of debt and equity financing for a firm

Depreciation

The expensing of the cost of an asset involved in producing revenues throughout its useful life

Free Cash Flow

Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money required to maintain or expand its asset base.

Double Taxation

How corporations are taxed

How are investments picked for companies?

Those which add the most value

What are mutually exclusive projects and how do we deal with them?

You accept the one with a higher NPV but you will have to calculate that.

Weighted Average Cost of Capital

Average rate of return a company expects to compensate all its different investors