cheat sheat test
1. Pct Change = [L(Later) – E(Earlier)] / E = (L/E) – 1
2. Pct = Decimal * 100; Decimal = Pct / 100
3. Order of Operations: “PEMDAS”
4. For (S / O): [(S/O)] / S > 0; [(S/O)] / O <>
5. For Normal Distribution: Mean +/- σ ≈ 68%; Mean +/- 2σ ≈ 95%; Mean +/- 3σ ≈ 99+%
6. FVn = PV0(1 + r) n 7. PV0 = FVn / (1 + r) n
8. n = ln (FV/PV) / ln (1 + r)
9. r = (FVn/PV0) (1/n) – 1
10. FVn = PMT [((1 + r) n – 1) / r]
11. PVt = PMT(t+1) [(1 – 1/(1 + r) n ) / r]
12. PVt = PMT(t+1) / r
13. Periodic Interest Rate, r = APR / m
14. EAR = (1 + APR/m)m – 1
15. r ≈ r* + h
16. r = r* + inf + dp + mp
17. Assets liabilities + owners’ equity
18. Change in retained earnings = net income – distributed earnings
19. Revenue – operating expenses = earnings before interest and taxes
20. Net income = revenues – expenses
21. Cash flow from assets = operating cash flow – net capital spending – change in net working capital
22. Operating cash flow = EBIT + depreciation – taxes
23. Net capital spending = ∆ net fixed assets + depreciation
24. Net working capital = current assets – current liabilities
25. Change in net working capital = ∆ current assets – ∆ current liabilities
26. Current ratio = current assets / current liabilities
27. Cash coverage ratio = (EBIT + depreciation) / interest expense
28. Total asset turnover = sales / total assets
29. (Net) profit margin = net income / sales Fall 2016
30. Return on assets = net income / total assets
31. Return on equity = net income / total owners’ equity
32. Earnings per share (EPS) = net income / number of outstanding shares
33. Price – earnings ratio = price per share / earnings per share
34. Market to book ratio = market value per share / book value per share
35. Return on equity = (net income / sales ) * (sales / total assets) * (total assets / total equity) 36. Bond Price (PB) = Coupon PMT [(1 – 1/(1 + r) n ) / r] + Par / (1 + r) n (See #s 11 and 7 above)
37. Current Yield = Annual Coupon PMT / PB
40. Profit = ending value + distributions-original cost
COGS appears on the liability side of the Income Statement.
Accounts payable represents short-term loans extended to you by the suppliers.
Changes in depreciation expense do affect a firm’s cash position.
An increase in inventory constitutes a use of cash.
Ceteris paribus, an increase in accounts receivable would decrease CFFA.
An decrease in accounts payable constitutes a use of cash while a increase in accounts receivable constitutes a source of cash.
If a firm’s CFFA or “free cash flow” is negative, this means that the firm will be unable to pay any cash dividends.
The balance sheet identity indicates that total assets can be found by subtracting total liabilities from total equity.
If there is no change in gross fixed assets from one year to the next, then net fixed assets would have to have decreased.
EBIT can be found by subtracting all operating expenses EXCEPT TAX from revenue, removing taxes is how you find EBT.
Every ratio tells us for every one of what’s on the bottom, here’s how many we have of what’s on the top.
“Ratio”, “proportion”, “fraction” all mean the same.
If the debt-asset ratio is 0.75, the equity multiplier would be 4.
Equity multiplier = A/E = 1/.25 = 4
The higher the equity multiplier, the lower the proportion of a firm’s assets that are financed with equity.
Common-size values on the balance sheet show each item as a percent of total equity.
If sales increase by 5% and total assets fall by 1%, the TAT ratio would go down by approximately 4%
A decrease in the current ratio indicates an improvement in a firm’s long-term solvency condition.
An increase in the cash coverage ratio means that a firm is more likely to default on its outstanding debt.
Ceteris paribus, according to the DuPont framework, an increase in the use of debt would reduce a firm’s ROE.
For firms with lower P/E ratios, investors are valuing each dollar of earnings more than for firms with higher P/E ratios.
Corporate managers who doing a better job of serving owners would see the marketbook ratio their firm exceed the ratio for managers who are not doing as good a job.
Because it contains no explicit measure of debt, the equity multiplier provides no information about a firm’s use of debt.
Lump sums are multiple cash flows.
PVs are later values and FVs are earlier values.
PVs are rightward on a time line and FVs are leftward on the time line.
PVs represent the amount that an earlier amount will grow into.
FVs represent what you need to invest earlier to have it grow into a specified later amount.
Discounting is the process used to find a FV.
What is “discounted” from the PV is the interest part to arrive at the FV.
With compound interest, interest is earned every period only on the original starting amount.
Ceteris paribus, as a depositor and for the same annual interest rate, you would prefer simple interest to compound interest.
There are a total of 3 variables in the basic TVM formulas.
The right-hand side variables in the FV formula represent the 3 key factors determining stock prices.
The FV and the discount rate are inversely related.
The number of years it would take an investment to double is approximately equal to the annual interest rate times 72. TVM (Multiple CF)
We’ve discussed 4 different multiple cash flow patterns.
Annuities are equal cash flows that go on forever.
There are 4 formulas on our formula sheet that contain the variable “PMT”.
We can determine which “PMT” we’re being asked to solve for by noting what the problem provides in terms of r and n.
On the time line for a retirement period, the FVA tells us the amount we should have accumulated by the time we retire.
The FVA tells us the one-time deposit we must make to reach a targeted retirement savings goal.
On the time line for a retirement period, “PMT” in the PVA formula tells us the recurring deposits that must be made earlier in order to reach a targeted retirement savings goal.
“PMT” in the FVA formula tells us the periodic mortgage payments for a fixed-rate fully amortized loan.
The interest part of a fixed mortgage loan payment can be found by multiplying the periodic interest rate by the ending balance for a given period.
For fixed-rate fully amortized mortgage loans, more of the fixed payment goes towards interest as we approach the end of the loan term.
We can find the amount needed to pay off a mortgage loan at any point in time by solving for the FV of the remaining payments.
1. Pct Change = [L(Later) – E(Earlier)] / E = (L/E) – 1
2. Pct = Decimal * 100; Decimal = Pct / 100
3. Order of Operations: “PEMDAS”
4. For (S / O): [(S/O)] / S > 0; [(S/O)] / O <>
5. For Normal Distribution: Mean +/- σ ≈ 68%; Mean +/- 2σ ≈ 95%; Mean +/- 3σ ≈ 99+%
6. FVn = PV0(1 + r) n 7. PV0 = FVn / (1 + r) n
8. n = ln (FV/PV) / ln (1 + r)
9. r = (FVn/PV0) (1/n) – 1
10. FVn = PMT [((1 + r) n – 1) / r]
11. PVt = PMT(t+1) [(1 – 1/(1 + r) n ) / r]
12. PVt = PMT(t+1) / r
13. Periodic Interest Rate, r = APR / m
14. EAR = (1 + APR/m)m – 1
15. r ≈ r* + h
16. r = r* + inf + dp + mp
17. Assets liabilities + owners’ equity
18. Change in retained earnings = net income – distributed earnings
19. Revenue – operating expenses = earnings before interest and taxes
20. Net income = revenues – expenses
21. Cash flow from assets = operating cash flow – net capital spending – change in net working capital
22. Operating cash flow = EBIT + depreciation – taxes
23. Net capital spending = ∆ net fixed assets + depreciation
24. Net working capital = current assets – current liabilities
25. Change in net working capital = ∆ current assets – ∆ current liabilities
26. Current ratio = current assets / current liabilities
27. Cash coverage ratio = (EBIT + depreciation) / interest expense
28. Total asset turnover = sales / total assets
29. (Net) profit margin = net income / sales Fall 2016
30. Return on assets = net income / total assets
31. Return on equity = net income / total owners’ equity
32. Earnings per share (EPS) = net income / number of outstanding shares
33. Price – earnings ratio = price per share / earnings per share
34. Market to book ratio = market value per share / book value per share
35. Return on equity = (net income / sales ) * (sales / total assets) * (total assets / total equity) 36. Bond Price (PB) = Coupon PMT [(1 – 1/(1 + r) n ) / r] + Par / (1 + r) n (See #s 11 and 7 above)
37. Current Yield = Annual Coupon PMT / PB
40. Profit = ending value + distributions-original cost
COGS appears on the liability side of the Income Statement.
Accounts payable represents short-term loans extended to you by the suppliers.
Changes in depreciation expense do affect a firm’s cash position.
An increase in inventory constitutes a use of cash.
Ceteris paribus, an increase in accounts receivable would decrease CFFA.
An decrease in accounts payable constitutes a use of cash while a increase in accounts receivable constitutes a source of cash.
If a firm’s CFFA or “free cash flow” is negative, this means that the firm will be unable to pay any cash dividends.
The balance sheet identity indicates that total assets can be found by subtracting total liabilities from total equity.
If there is no change in gross fixed assets from one year to the next, then net fixed assets would have to have decreased.
EBIT can be found by subtracting all operating expenses EXCEPT TAX from revenue, removing taxes is how you find EBT.
Every ratio tells us for every one of what’s on the bottom, here’s how many we have of what’s on the top.
“Ratio”, “proportion”, “fraction” all mean the same.
If the debt-asset ratio is 0.75, the equity multiplier would be 4.
Equity multiplier = A/E = 1/.25 = 4
The higher the equity multiplier, the lower the proportion of a firm’s assets that are financed with equity.
Common-size values on the balance sheet show each item as a percent of total equity.
If sales increase by 5% and total assets fall by 1%, the TAT ratio would go down by approximately 4%
A decrease in the current ratio indicates an improvement in a firm’s long-term solvency condition.
An increase in the cash coverage ratio means that a firm is more likely to default on its outstanding debt.
Ceteris paribus, according to the DuPont framework, an increase in the use of debt would reduce a firm’s ROE.
For firms with lower P/E ratios, investors are valuing each dollar of earnings more than for firms with higher P/E ratios.
Corporate managers who doing a better job of serving owners would see the marketbook ratio their firm exceed the ratio for managers who are not doing as good a job.
Because it contains no explicit measure of debt, the equity multiplier provides no information about a firm’s use of debt.
Lump sums are multiple cash flows.
PVs are later values and FVs are earlier values.
PVs are rightward on a time line and FVs are leftward on the time line.
PVs represent the amount that an earlier amount will grow into.
FVs represent what you need to invest earlier to have it grow into a specified later amount.
Discounting is the process used to find a FV.
What is “discounted” from the PV is the interest part to arrive at the FV.
With compound interest, interest is earned every period only on the original starting amount.
Ceteris paribus, as a depositor and for the same annual interest rate, you would prefer simple interest to compound interest.
There are a total of 3 variables in the basic TVM formulas.
The right-hand side variables in the FV formula represent the 3 key factors determining stock prices.
The FV and the discount rate are inversely related.
The number of years it would take an investment to double is approximately equal to the annual interest rate times 72. TVM (Multiple CF)
We’ve discussed 4 different multiple cash flow patterns.
Annuities are equal cash flows that go on forever.
There are 4 formulas on our formula sheet that contain the variable “PMT”.
We can determine which “PMT” we’re being asked to solve for by noting what the problem provides in terms of r and n.
On the time line for a retirement period, the FVA tells us the amount we should have accumulated by the time we retire.
The FVA tells us the one-time deposit we must make to reach a targeted retirement savings goal.
On the time line for a retirement period, “PMT” in the PVA formula tells us the recurring deposits that must be made earlier in order to reach a targeted retirement savings goal.
“PMT” in the FVA formula tells us the periodic mortgage payments for a fixed-rate fully amortized loan.
The interest part of a fixed mortgage loan payment can be found by multiplying the periodic interest rate by the ending balance for a given period.
For fixed-rate fully amortized mortgage loans, more of the fixed payment goes towards interest as we approach the end of the loan term.
We can find the amount needed to pay off a mortgage loan at any point in time by solving for the FV of the remaining payments.