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Finance rules, ROA = NI/TA, week 4, dividend payout ratio, beta is…
Finance rules
week 6/7
FVA = PMT((1+r)^t-1/r)
PVA = PMT (1-(1/1+r)^t/r)
PV = PMT/r if it is infinite
perpetuity or preferred stocks
EAR = (1+APR/m)^m-1
APR = m((1+EAR)^1/m -1)
weeks = 52
week 10/11
pay back period PBP
whole period + (remaining/next)
not efficient, but mostly used
less is better
preferred by SME
Net present value
Sum Pv(CF) - I.I (initial investment)
single project
positive result accept
negative result decline
multiple projects
the higher NPV the better or both if less than budget
NOTE most efficient, not mostly used
profitability index
sum Pv(CF)/I.I
causes confusion
because it is a scale
used easily understood
Average Accounting return (AAR)
Average income / average assets
highly used ,easy to understand
Internal rate of return (IRR)
Is the discount rate that makes the NPV equals to ZERO
week 3
CCC =days in inventory+ days in recievables - Cost in Payable
Payable turnover= COGS/ AP
Net income = (1-Tax rate ) x taxable income
Taxable income = EBIT - interest
Week 5
Pv = Fv/(1+r)^t
Fv = Pv(1+r)^t
time = Ln(FV/PV)/Ln(1+r)
r = (fv/pv)^(1/t) -1
week1/2
liquidity ration
current ratio = CA/CL
every 1 dollar in Cl is covered by X in CA
Quick ratio = CA-inventory/CL
inventory least liquid asset
cash ratio = Cash/CL
Financial leverage
total debt ratio TD = TA-TE/TA
Debt Equity Ratio = TD/TE
1 - equity multiplier
Equity Multiplier = TA/TE
1 + Debt to equity ratio
Time interest earned ratio = EBIT/interest
Cash coverage = (EBIT+ Depreciation)/Interest
TA = TD/TD ratio
Net working capital = CA - CL
Common-size value of inventory = Inventory/TA *100
week 8/9
WACC
Debit
equity
Wcs
Kcs
Wps
Kps
Wd
Kd
(1-T)
YTM
1 more item...
KD = bonds x par percent x par value
1 more item...
% of debt in capital structure
Loan/total value
Div/price
Outsatanding x 100 / price
Value of Ps/ value of firm
(Div/P) + g (growth rate)
(D(1+g)/p) + g
Div, discount model
Div. Growth model
Value of cs/value of firm
ROA = NI/TA
ASSET MANAGMENT
Inventory turnover = COGS/inventory
Days on sales 365/ Inventory turnover
Receivable turnover = Sales/AR
365/R turnover
TA turnover = Sales/TA
Profit Margin = NI/Sales
Capital intensity = 1/TA turnover
TA turnover = 1/capital intentisty
Profit margin x TA turnover = ROA
week 4
ROE Dimensions
NI/TE
or du-point
Profitability X
NI/Sales
TA turnover
Sales/TA
X Equity multiplier
TA/TE
FIRM growth
NI
internal growth
b
ROA/1-(b
ROA)
b rentential ratio?
retential earnings / NI
R.E / NI
RE =NI - dev
= 1- DPR
D/E ratio
b
ROE/1-(b
ROE)
dividend payout ratio
dividend / NI
beta is standardized measure = firm specific risk
which is elasticity measure
CAPM =risk free return+ beta x Market risk premium
MRP = market return - Rfr
Kcs
ROE = NI/TE
(1-b) x NI
Dividend paid
We
1/(1+D/E)
Wd
100- We
X
X
Assets = Liabilities + equity
x
x
x
+
+
x