# 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.**