BEC Formulas

Break-Even (Call) = Strike Price + Cost of Option

Break-Even (Put) = Strike Price – Cost of Option

!"#$%$&# ()*+ ($% ($%*,+

Effective Interest Rate = -$# .%,/$$+& ,0 1,)"

.%*"/*()2 3 456
Interest paid per period = # ,0 .$%*,+&

Annual Percentage Rate: APR = Effective Interest Rate x # Periods in Year

Effective Annual Percentage Rate:

EAR = (1 + $%%&'()*& ,-(&.&/( 01(&)# 8,9(,:"+*"; .$%*,+& − 1

# 8,9(,:"+*"; .$%*,+&
740
$40 = 61 + A −1
# 9:;<:=->)-? @&.):>/

Simple Interest: SI = Principal x SAR x # Years

Compound Interest: FV = @.)-')<1B(1 + ,-(&.&/( 01(&)<,#)2 .$%*,+&

Required Rate of Return = Nominal Risk-Free Rate + Risk Premiums

= ?
Weighted Average Cost of Capital: WACC = =>? *C= + =>? * C? * (1 – t)

k @ = cost of equity; k A = cost of debt @

@>A
= percentage of financing that is equity
E = market value of firm’s equity A
D = market value of firm’s debt @>A
= percentage of financing that is debt
t = corporate tax rate
1
Weighted Average Cost of Finance:

WACC = (kdx x wdx) + (kps x wps) + (kre x wcs)

kdx = cost of long-term debt (after tax)

wdx = (weight for) long-term debt (after tax)
kps = cost of preferred stock
wps = (weight for) preferred stock
kre = cost of retained earnings
wcs = (weight for) common stock equity

=00$/#*B$ 5"":)2 !"#$%$&# .)C9$"#&

Weighted Average Interest Rate = ?$D# E:#&#)"+*";

After-tax Cost of Debt = Pretax cost of debt x (1 – Tax rate)

.%$0$%%$+ 4#,/F ?*B*+$"+&

Cost of Preferred Stock = -$# .%,/$$+& ,0 .%$0$%%$+ 4#,/F

Preferred Stock Dividends = Par value x Dividend rate %

Capital Asset Pricing Model: CAPM = .0 + R S T U09 − .0 VW

.0 = risk free rate

09 = expected market return
09 − .0 = market risk premium

?
Discounted Cash Flows: DCF = .! + ?
"

@G = current market value/price

XH = expected dividend per share at end of one year
g = constant rate of growth in dividends

Bond Yield Plus Risk Premium: BYRP = Pretax cost of LT debt + Market Risk Premium

2
 6$#:%" ," )&&$#& 3 6$#$"#*,"
Growth Rate: g = HI(6$#:%" ," )&&$#& 3 6$#$"#*,")

!"/,9$ D$0,%$ *"#$%$&# *"/,9$,

*"#$%$&# $3($"&$,)"+ #)3$&
Return on Sales: ROS = 4)2$& ("$#)

-$# !"/,9$
Return on Investment: ROI = 5B$%);$ !"B$&#$+ 8)(*#)2

-$# !"/,9$
Return on Assets: ROA = 5B$%);$ <,#)2 5&&$#&

-$# !"/,9$
Return on Equity: ROE = 5B$%);$ <,#)2 =M:*#C

% ∆ =P!<
Degree of Operating Leverage: XYZ = % ∆ 4)2$&

% ∆ =P< ,% =.4
Degree of Financial Leverage: X[Z = % ∆ =P!<

Value of a Levered Firm = Value of an unlevered firm + Present value of the interest tax savings

# 3 (%#$%& 3 ?)
Present Value of Interest Tax Savings = %#$%&

t = corporate tax rate

r = interest rate on debt
D = amount of debt
3
 <,#)2 1*)D*2*#*$&
Total Debt Ratio = <,#)2 5&&$#&

<,#)2 1*)D*2*#*$&
Debt-to-equity Ratio = <,#)2 =M:*#C

<,#)2 5&&$#&
Equity Multiplier = <,#)2 =M:*#C

=)%"*";& P$0,%$ !"#$%$&# =3($"&$ & <)3$& (=P!<)

Times Interest Earned Ratio = !"#$%$&# =3($"&$

8:%%$"# 5&&$#&
Current Ratio = 8:%%$"# 1*)D*2*#*$&

8)&R & 8)&R =M:*B)2$"#&>4< S)%F$#)D2$ 4$/:%*#*$&>6$/$*B)D2$& ("$#)

Quick Ratio = 8:%%$"# 1*)D*2*#*$&

Cash Conversion Cycle = Days in Inventory + Days Sales in AR – Days of Payables Outstanding

4
 8,&# ,0 T,,+& 4,2+
Inventory Turnover = 5B$%);$ !"B$"#,%C

="+*"; !"B$"#,%C
Days in Inventory = (8,&# ,0 T,,+& 4,2+ ÷ VWX )

4)2$& ("$#)
Accounts Receivable Turnover = 5B$%);$ 5//,:"#& 6$/$*B)D2$ ("$#)

="+*"; 5//,:"#& 6$/$*B)D$ ("$#)

Days Sales in Accounts Receivable = (4)2$& ("$#) ÷ VWX)

="+*"; 5//,:"#& 6$/$*B)D$ ("$#)

Days Sales in Accounts Receivable = 4)2$& ("$#)
x # Days in the Period

8,&# ,0 T,,+& 4,2+

Accounts Payable Turnover = 5B$%);$ 5//,:"#& .)C)D2$

="+*"; 5//,:"#& .)C)D2$

Days of Payables Outstanding = (8,&# ,0 T,,+& 4,2+ ÷ VWX)

4)2$&
Working Capital Turnover = 5B$%);$ Y,%F*"; 8)(*#)2

P$;*""*"; ,0 .$%*,+ Y,%F*"; 8)(*#)2 > ="+ ,0 ($%*,+ Y,%F*"; 8)(*#)2

Average Working Capital = Z

Reorder Point = Safety Stock + Lead Time x Sales During Lead Time

5
 Z 3 5"":)2 4)2$& (:"*#&) 3 8,&# ($% .:%/R)&$ E%+$%
Economic Order Quantity (EOQ) = \ 5"":)2 8)%%C*"; 8,&# ($% ["*#

Z4E
EOQ = \ 8
EOQ = Order Size
S = Annual Sales (units)
O = Cost per Purchase Order
C = Annual Carrying Cost per Unit

VWG ?*&/,:"#
APR of Quick Payment Discount = .)C .$%*,+I?*&/,:"# .$%*,+ T HGGI?*&/,:"# %

\ ] (H – _`abacd efgha ifjdk`)

Annuity Present Value = %

C = Amount of Annuity (equal future cash flows)

H
Present Value Factor = (H>%)& r = Rate of Return
t = Number of Years

?*B*+$"+
Present Value of a Perpetuity: P = 6$M:*%$+ 6$#:%"
P = Stock Price
(Stock Value per Share) D = Dividend
R = Required Return

?&'! (H>;)
Constant (Gordon) Growth Dividend Discount Model (DDM) = @# = (6I;)

@# = 9=..&-( @.)'& (<.)'& 1( <&.):> t) R = Required Return

!("#$) = !#$#%&'% )'& *&+, +-.&, /&,#)% . G = (Sustainable) Growth Rate

.
Price-Earnings Ratio (P/E) = =" @G = 7(:'C @.)'& :. ]1B=& ^:>1_
!
$H = $@7 &T<&'(&> )- :-& _&1.

.
Trailing P/E Ratio = =" @G = 7(:'C ]1B=& :. ]1B=& ^:>1_
"
$G = $@7 %:. (ℎ& <1/( _&1.
6
 ("
)!
PEG Ratio = ;
@G = Stock Price or Value Today
$H = $T<&'(&> $@7
g = Growth Rate = 100 x Expected growth rate

Current Price of Stock = @G = @$a T $H T ?

(Using PEG)

.
Price-to-Sales Ratio (P/S) = 4" @G = Stock Price or Value Today
!
7H = $T<&'(&> 71B&/ )- :-& _&1.

."
Current Price of Stock = @G = 4!
T 7H
(Using P/S)

.
Price-to-Cash-Flow Ratio (P/CF) = 8l" @G = Stock Price or Value Today
!
9[H = $T<&'(&> '1/ℎ %B:b )- :-& _&1.

."
Current Price of Stock = @G = 8l!
T 9[H
(Using P/CF)

.
Price-to-Book Ratio (P/B) = P" @G = Stock Price or Value Today
"
cG = c::C *1B=& :% ':;;:- &d=)(_ ((:>1_)

Depreciation Tax Shield = Depreciation x Tax Rate

Net Present Value:

Step 1: Calculate after-tax cash flows = Annual Net Cash Flow x (1 – Tax Rate)
Step 2: Add (+) Depreciation Benefit = Depreciation x Tax Rate
Step 3: Multiply (x) result by appropriate PV of an annuity (assuming cash flows are an annuity)
Step 4: Subtract (-) initial cash outflow
= NPV

7
 .%$&$"# m)2:$ ,0 8)&R l2,n&
Profitability Index = 8,&# (.m),0 *"*#*)2 *"B$&#9$"#

-$# !"*#*)2 !"B$&#9$"#

Payback Period = 5B$%);$ !"/%$9$"#)2 8)&R l2,n∗ *Where cash flow per period is even

H
Present Value Factor = (H>%)* r = interest rate
n = number of years

HI.m l)/#,%
Present Value Factor of Annuity = %

?*B*+$"+> ∆ 4#,/F .%*/$

Economic Return % = !"*#*)2 !"B$&#9$"#

Free Cash Flow = Net Income + Noncash Expenses – Increase in WC – Capital Expenditures

/ / / / />(
PVFCF = (H>%)! + (H>%)+ + (H>%), + (H>%)- + ⋯ (H>%)& c = coupon payment
r = discount/market rate
t = # of periods/payouts
p = principal

Valuing Intangible Assets:

Income Approach: Value = Expected FCF x Discount Factor

Valuing Tangible Assets:

Cost Method: Net Book Value = Original Cost to Buy Asset – Accumulated
Depreciation

Replacement Cost: Value = Cost to Replace + Assembly + Transportation

8
PV of After-Tax Lease Payment = Lease Payment x PV Factor
= Lease Payment x (1-T)

Prime Cost = Direct Labor + Direct Materials

Conversion Cost = Direct Labor + OH Applied

Traditional Costing:
P:+;$#$+ EB$%R$)+ 8,&#&
Step 1: Overhead Rate = =&#*9)#$+ 8,&# ?%*B$%

Step 2: Applied Overhead = Actual Cost Driver x Overhead Rate

Beginning Raw Materials Beginning WIP

+ Purchase of Raw Materials + Raw Materials Used
Raw Materials Available for Use + DL & OH Used .
- Raw Materials Used WIP Available to be Finished
Ending Raw Materials - Transferred to Finished Goods
Ending WIP

Beginning Finished Goods

+ Transferred from WIP
Finished Goods Available for Sale
- COGS
Ending Finished Goods

Cost of Goods Manufactured = Begin. WIP + RM Used + DL (Actual) + OH Applied – End WIP

Cost of Goods Sold = Begin. Finished Goods + COGM – Ending Finished Goods

Cost of Goods Sold = Beginning Inventory + Purchases – Ending Inventory

Cost of Goods Available for Sale = Begin. Finished Goods + COGM

9
Equivalent Units:

Weighted Average: Units Completed

+ (Ending WIP x % Completed)
Equivalent Units

FIFO: (Beginning WIP x % to be completed)

+ (Units Completed – Beginning WIP)
+ (Ending WIP x % completed) .
Equivalent Units

Cost Per Equivalent Unit:

P$;*""*"; 8,&# > 8:%%$"# 8,&#

Weighted Average: =M:*B)2$"# ["*#&

8:%%$"# 8,&# E"2C

FIFO: =M:*B)2$"# ["*#&

Sales Value at Split-Off = Final Selling Price – Identifiable Costs Incurred After Split-Off

E:#(:#
Total Factor Productivity Ratio (TFP) = <,#)2 8,&#

E:#(:#
Partial Productivity Ratio (PPR) = 4($/*0*/ p:)"#*#C ,0 S)#$%*)2 ,% 1)D,%

High-Low Method:
!"#$%&' )*'+, -*&' . /*0%&' )*'+, -*&'
1. !"#$"%&' )*+, -'# ./$, = !"#$%&' 1*,23% . /*0%&' 1*,23%

2. Variable Cost = Highest or Lowest Volume x Variable Cost per Unit

3. Fixed Costs = Total Costs – Variable Cost

10
Linear Regression Model: y = a +Bx y = dependent variable (variable we are trying to explain)
x = independent variable (the regressor) explains y
a = y-axis intercept of the regression line
B = slope of the regression line

Absorption Costing: Contribution/Variable/Direct Costing:

Revenue Revenue
Less: COGS Less: Variable Costs
Gross Margin Contribution Margin
Less: Operating Expenses Less: Fixed Costs
Net Income Net Income

Flexible Budget: Total Cost = Fixed Costs + (VC per unit x # of units)

Contribution Margin (CM) = Revenue – Variable Costs

Unit Contribution Margin (UCM) = Unit Sales Price – Variable Cost per Unit

8,"#%*D:#*," S)%;*"
Contribution Margin Ratio (CMR) = 6$B$":$

Controllable Margin = Contribution Margin – Controllable “fixed” Costs

T%,&& S)%;*"
Gross Margin (%) = -$# 4)2$&
Gross Profit = Selling Price – Total Costs (COGS+OH)

l*3$+ SEq
Fixed Costs per Unit = ["*#& .%,+:/$+

Change in Income = Change in Inventory Units x Fixed Costs per Unit

11
 <,#)2 l*3$+ 8,&#&
Break-Even Point (Units) = ["*# 8,"#%*D:#*," S)%;*"

Break-Even Point ($) = Unit Price x Break-Even Point (units)

<,#)2 l*3$+ 8,&#&

Break-Even Point ($) =
8,"#%*D:#*," S)%;*" 6)#*,

Target Profit:

l*3$+ 8,&#& > .%$#)3 .%,0*#

Sales (Units) = ["*# 8,"#%*D:#*," S)%;*"

Sales ($) = Variable Costs + Fixed Costs + Pretax Profits

l*3$+ 8,&#& > .%$#)3 .%,0*#

Sales ($) = 8,"#%*D:#*," S)%;*" 6)#*,

l*3$+ 8,&#& > m)%*)D2$ 8,&#& > .%$#)3 .%,0*#

Sales Price per Unit = # ,0 ["*#& 4,2+

Margin of Safety ($) = Total Sales ($) – Breakeven Sales ($)

S)%;*" ,0 4)0$#C ($)

Margin of Safety (%) = <,#)2 4)2$&

Target Cost = Market Price – Required Profit

12
 !"#$%&
ROI = ROI = Profit Margin x Investment Turnover
!"'&()%&") +,-.),/

Investment Capital = Total Assets – Operating Liabilities

Investment Capital = Interest Bearing Debt + Equity

-$# !"/,9$ 8:%%$"# s$)% > .%*,% s$)%

ROA = 5B$%);$ <,#)2 5&&$#& Average Total Assets = Z

-$# !"/,9$
ROE = =M:*#C ()B$%);$)

-$# !"/,9$ 4)2$&

Net Profit Margin = 4)2$&
Asset Turnover = 5&&$#& ()B$%);$)

5&&$#& ?$D#
Financial Leverage = =M:*#C DFL = 1 + =M:*#C

DuPont ROE = Net Profit Margin x Asset Turnover x Financial Leverage

DuPont ROE = ROA x Financial Leverage

-$# !"/,9$ .%$#)3 !"/,9$

Tax Burden = .%$#)3 !"/,9$ Interest Burden = =)%"*";& P$0,%$ !"#$%$&# & <)3 (=P!<)

=P!<
EBIT Margin = 4)2$&

Extended DuPont = Tax Burden x EBIT Margin x Asset Turnover x Financial Leverage

Residual Income = Net Income – Required Return on Equity

Where: Required Return = Net Book Value (Equity) x Hurdle Rate

Net Operating Profit After Tax (NOPAT) = EBIT x (1 - Tax Rate)

Economic Value (EVA) = NOPAT – Required Return ($)

Where: Required Return = Investment x WAAC

13
Budgeted Production = Budgeted Sales + Desired Ending Inventory – Beginning Inventory

DM Purchase Budget:

# Units to be Purchased = Units of DM Needed + Desired End. Inventory – Begin. Inventory

Cost of DM to be Purchased = Units of DM to be Purchased x Cost per Unit

DM Usage Budget:

DM Usage = Begin. Inventory @ Cost + Purchases @ Cost – End. Inventory @ Cost

DL Budget:

Total # Hours Needed = Budgeted Production (units) x Hours Required to Produce Each Unit

Total Wages = Total # Hours Needed x Hourly Wage Rate

COGM&S Budget:

COGS = COGM + Begin. FG Inventory – End. FG Inventory

Cash Budget Format:

Beginning Cash
+ Cash Collections from Sales
- Cash Disbursements for Purchases & Operating
= Computed Ending Cash
- Cash Requirements to Sustain Operations
= Working Capital Loan to Maintain Cash Requirements

Standard Direct Costs = Standard Price x Standard Quantity

Standard Indirect Costs = Standard (predetermined) Application Rate x Standard Quantity

DM Price Variance = Actual Quantity Purchased x (Actual Price – Standard Price)

DM Quantity Usage Variance = Standard Price x (Actual Quantity Used – Standard Quantity Allowed)

DL Rate Variance = Actual Hours Worked x (Actual Rate – Standard Rate)

DL Efficiency Variance = Standard Rate x (Actual Hours Worked – Standard Hours Allowed)

14
 -,9*")2 T?.
Real GDP =
T?. ?$02)#,%
T 100

H
Multiplier =
HIS)%;*")2 .%,($"&*#C #, 8,"&:9$ (S.8)

Change in Real GDP = Multiplier x Change in Spending

# ,0 ["$9(2,C$+
Unemployment Rate =
<,#)2 1)D,% l,%/$
T 100

8:%%$"# 8,&# ,0 S)%F$# P)&F$#

Consumer Price Index (CPI) =
P)&$ s$)% 8,&# ,0 S)%F$# P)&F$#
T 100

8.!./00$*& 2$034# I 8.!20340 2$034#

Inflation Rate =
8.!20340 2$034#

Real Interest Rate = Nominal Interest Rate - Inflation Rate

Nominal Interest Rate = Real Interest Rate + Inflation Rate

% 8R)";$ *" p:)"#*#C ?$9)"+$+

Price Elasticity of Demand (14 ) =
% 8R)";$ *" .%*/$

% 8R)";$ *" p:)"#*#C 4:((2*$+

Price Elasticity of Supply (14 ) =
% 8R)";$ *" .%*/$

% 8R";$ *" # ["*#& ,0 t ?$9)"+$+ (&:((2*$+)

Cross Elasticity of Demand (Supply) ()% ) =
% 8R)";$ *" .%*/$ ,0 s

% 8R)";$ *" # ["*#& ,0 t ?$9)"+$+ (4:((2*$+)

Interest Elasticity of Demand (Supply) (2% ) =
% 8R)";$ *" !"/,9$

15