Finance Exam Tips: Formulas, Ratios, and Quick Patterns
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29 Terms
Fisher Equation
Formula for relating nominal, real, and inflation rates: (1+Nominal)=(1+Real)(1+Inflation)
Nominal Rate
What you see in terms of interest rates.
Real Rate
True buying power of money.
Inflation
Price increases over time.
Current Ratio
CA/CL; measures liquidity and short-term ability to pay.
Quick Ratio
(CA-Inventory)/CL; measures liquidity without selling inventory.
Days in Receivables
AR/(Sales/365); indicates how many days it takes to collect receivables.
AR Turnover
Sales/AR; measures how many times per year receivables are collected.
Days in Inventory
Inventory/(COGS/365); indicates how long inventory sits.
Inventory Turnover
COGS/Inventory; measures how quickly inventory is sold.
Operating Profit (EBIT)
Sales minus COGS, operating expenses, and depreciation.
Operating Profit Margin
EBIT/Sales; measures profitability from operations.
Net Profit Margin
Net Income/Sales; measures overall profitability.
Return on Equity (ROE)
Net Income/Common Equity; measures return to shareholders.
Debt Ratio
Total Debt/Total Assets; higher indicates more risk.
Times Interest Earned (TIE)
EBIT/Interest; measures ability to pay interest.
P/E Ratio
Price/EPS; measures market value relative to earnings.
P/B Ratio
Price/Book Value per Share; measures market value relative to book value.
EVA
(Operating ROA - Cost of Capital) × Total Assets; indicates value creation or destruction.
Taxable Income (EBT)
Calculated as EBIT minus Interest.
Sales Tax Calculation
Sales minus COGS minus Operating Expenses minus Depreciation.
Goal of Firm
Maximize stockholder wealth.
Money Market
Short-term debt instruments like T-bills and CDs.
Capital Market
Market for stocks and long-term bonds.
Primary Market
Market for new securities issued.
Secondary Market
Market for trading existing securities.
Sole Proprietorship
Business structure with unlimited liability.
Corporation
Business structure with limited liability.
SEC Created By
Securities Exchange Act of 1934.
Note 
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