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Corporate Finance Formula Sheet

A document that entails various formulas used in calculations that are regularly performed in basic corporate finance classes.

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ogsunny
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4K views

Corporate Finance Formula Sheet

A document that entails various formulas used in calculations that are regularly performed in basic corporate finance classes.

Uploaded by

ogsunny
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FORMULA SHEET FOR THE FINAL

=1+(D/E)

Earnings Per Share (EPS) = Net Income / Total shares Dividends per Share (DPS) = Total Dividends / Total shares Net Income = Cash Dividends + Addition to retained earnings

Dividend Payout Ratio = Cash Dividends / Net Income Net Working Capital (NWC) = Current Assets (CA) - Current Liabilities (CL)

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CFFA = OCF - NET CAPITAL SPENDING - CHANGE IN NWC Net Capital Sp. = Ending net fixed assets - Beginning net fixed assets + Depreciation Change in NWC = Ending NWC - Beginning NWC CF to creditors = Interest Paid - Net new borrowing CF to stockholders = Dividends paid - Net new equity raised CFFA = CF to creditors + CF to stockholders OCF FORMULAS 1) OCF = EBIT+DEPRECIATION-TAXES 2) OCF = (SALES-COSTS)x(1-T) + DxT 3) OCF = NET INCOME + DEPRECIATION Depreciation tax shield = Depreciation x T Straight-line depreciation "D" = (Initial cost ending book value) / number of years Book value of an asset = initial cost accumulated depreciation After-tax salvage = salvage T(salvage book value) NPV = PV of future cash flows - cost PI = PV of future cash flows / cost AAR = Average Net Income / Average Book Value

FV = PV (1+r)t PV = FV/(1+r)t r = (FV / PV)1/t 1 t = Ln(FV / PV) / Ln(1 + r) Annuity Future Value

Annuity Present Value

1 1 (1 + r ) t PV = C r
Annual Percentage Rate 1 APR = m (1 + EAR) m - 1 Effective Annual Rate m APR EAR = 1 + 1 m

(1 + r )t 1 FV = C r
PV for a perpetuity = C / r

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1 1 (1 + r) t Bond Value = C r

F + t (1 + r)

Fisher Effect: (1 + R) = (1 + r)(1 + h), where, R = nominal rate, r = real rate, h = expected inflation rate

P0 is the PV of all expected future dividends:

Constant Dividend Case:

P0 =

D1 D2 D3 + + + ... (1 + R)1 (1 + R) 2 (1 + R) 3

P0 =

D R

Dividend Growth Model:

Using DGM to find R:

P0 =

D 0 (1 + g) D = 1 R -g R -g

D 0 (1 + g) D1 = R -g R -g rearrange and solve for R P0 = R= D 0 (1 + g) D +g= 1 +g P0 P0 D1 P0

Dividend yield =

Capital gains yield = g

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Historical variance = sum of squared deviations from the mean / (number of observations 1) Historical Standard deviation = square root of the historical variance Expected Return: Expected Variance: Expected Standard deviation:

E ( R) = pi Ri
i =1

2 = pi ( Ri E ( R )) 2
i =1

= 2

(pi is the probability of state i occurring) Return of a portfolio in state i :

R portfolio,i = w j R j ,i
j

For example, let's say we have 2 assets: A and B and 2 states: boom and recession. Then the portfolio return in each state is calculated as:

where wj is the portfolio weight for asset j Rj,i is the return of asset j in state i

Rportfolio,boom = wAxRA,boom + wBxRB,boom Rportfolio,recession = wAxRA,recession + wBxRB,recession

Value of an unlevered firm (assuming perpetual cash flows) : Without Taxes V L = VU WACC = R A = (E/V)RE + (D/V)RD RE = RA + (RA RD)(D/E) Capital Asset Pricing Model (SML) Cost /Req. Return of Equity RE: Dividend growth model CAPM E(RA) = Rf + A(E(RM) Rf)

VU = EBIT(1-T) / RU With taxes VL = VU + DTC WACC = R A = (E/V)RE + (D/V)(RD)(1-TC) RE = RU + (RU RD)(D/E)(1-TC)

M&M Proposition I M&M Proposition II

P0 = RE =

D1 RE g D1 +g P0

RE = R f + E ( E ( RM ) R f )

Cost/Req. Return Debt: R D = YTM on debt Cost/Req. Return Preferred: R P = D / P0 Weighted Average Cost of Capital a.k.a. WACC = W ExRE + W DxRD(1-TC) + W PxRP V=E+D+P; W E=E/V; W D=D/V; W P=D/V

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