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SFM Formulas

SFM Formulas

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Syed Faizan
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24 views3 pages

SFM Formulas

SFM Formulas

Uploaded by

Syed Faizan
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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S.F.

M FORMULAS

STRATEGIC FINANCIAL MANAGEMENT (SFM)


FORMULAS

DIVIDEND POLICY

1. RESIDUAL DIVIDEND POLICY Dividend = PAT – (Capex/WC × Equity ratio)

2. WALTER MODEL 𝑫 𝒓 (𝑬 − 𝑫)/𝒌


𝑷= +
Assumptions: 𝒌 𝒌
a) Finances all investments through Here,
retained earnings P: Share price
b) Constant R & K K: Cost of Equity
c) All Earnings distributed or r: IRR on Equity
reinvested E: Earning
D: Dividend

𝑬𝟏 (𝟏 − 𝒃)
𝑷𝑶 =
3. GORDON’S MODEL 𝒌 − 𝒃𝒓
Here,
Assumptions:
a) All Equity firm
Po: Share price
b) No external financing available K: Cost of Equity
c) Constant R & K g: br
d) No taxes b: retention rate
e) Constant growth and perpetual r: return on equity
earnings
In long run (r = k) that’s why dividend is irrelevant
a) MM HYPOTHESIS
(Dividend irrelevance theory) 𝑫 + (𝑷𝟏 − 𝑷𝒐)
𝒓=
𝑷𝒐
Assumptions:
a) The firm operates in perfect 𝑫𝟏 + 𝑷𝟏 𝑫𝟏 + 𝑷𝟏
capital market (info subko ho) 𝑷𝒐 = 𝑶𝒓 𝑷𝒐 = (𝒔𝒊𝒏𝒄𝒆 𝒓 = 𝒌)
(𝟏 + 𝒓) (𝟏 + 𝒌)
b) No taxes
c) The firm has a fixed investment
𝑵(𝑫𝟏 + 𝑷𝟏)
policy 𝑽𝒂𝒍𝒖𝒆 = 𝒏𝑷𝒐 =
d) The firm has a fixed investment (𝟏 + 𝒌)
policy
𝑵𝑫𝟏 + (𝒏 + 𝒎)𝑷𝟏 − 𝒎𝒑𝟏
𝒏𝑷𝒐 =
(𝟏 + 𝒌)

Here,
r: IRR
Page 1|3
SYED SHAHBAZ RAZA ZAIDI
S.F.M FORMULAS

K: Cost of capital (ke)


P1-P0: Capital Gain
D: Dividend
P1: Share price after 1 Year
Po: Share price today
N: No. of existing shares
M: No. of new shares
MP1: New share price

Geared Beta 𝐷𝑒𝑏𝑡 (1−𝑇𝑎𝑥)


1+
𝐸𝑞𝑢𝑖𝑡𝑦

CAPITAL STRUCTURE

1. Cost of Equity Ke = Rf + β (Rm – Rf)


(CAPM)

𝑫 𝒓 (𝑬 − 𝑫)/𝒌
𝑷= +
2. Modigliani & Miller 𝒌 𝒌
(M&M) – 1958 WITHOUT TAX
theory with no 𝑫
Ke = Keu + (Keu – Kd) ×
taxation 𝑬
Vg = Vu
WITH TAX
𝑫 (𝟏−𝑻)
Ke = Keu + (Keu – Kd) ×
𝑬

Vg = Vu + (D × T)
(Debt is irredemable)

WACCg = (Keg × We) + Kd × (1-T) × Wd


𝑫×𝐓
WACCg = Keu (1- )
𝑬+𝑫
Or
WACCg = Keu (1-T) × L
𝑫
L=
𝑬+𝑫

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SYED SHAHBAZ RAZA ZAIDI
S.F.M FORMULAS

Direct Quote

Effective Rate
Money Market
𝑺𝒑𝒐𝒕 𝑹𝒂𝒕𝒆 (𝑺𝒆𝒍𝒍𝒊𝒏𝒈/𝑩𝒖𝒚𝒊𝒏𝒈)
Hedge × 𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑹𝒂𝒕𝒆 (𝑯)(𝑩𝒐𝒓𝒓𝒐𝒘/𝑫𝒆𝒑)
𝑰𝒏𝒕𝒆𝒓𝒆𝒔𝒕 𝑹𝒂𝒕𝒆(𝑭) (𝑫𝒆𝒑/𝑩𝒐𝒓𝒓𝒐𝒘)

Selling rate in case of Import


Buying rate in case of Export

MAULA ALI (A.S)


“BLESSED IS HE WHOSE KNOWLEDGE & PRACTICE, LOVE & HATE,
ACCEPTANCE & REFUSAL, SPEECH & SILENCE, WORDS & ACTIONS ARE
SINCERELY FOR THE SAKE OF ALLAH”
MAULA HUSSAIN (A.S)
“JISNY TUJHY (ALLAH) PA LIYA USNY KHOYA KIA
JISNY TUJHY(ALLAH) KHO DIYA USNY PAYA KIA”

NOTE: FOR MORE EDUCATIONAL CONTENT YOU CAN CONTACT ME:

NAME: SYED SHAHBAZ RAZA ZAIDI

EMAIL ADDRESS: [email protected]

SL 2 GOOGLE DRIVE LINK


https://drive.google.com/folderview?id=1jQt_hUTB63NkrILUOa_I3uZGbhzb4Jri

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SYED SHAHBAZ RAZA ZAIDI

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