Financial Ratios and Calculations: Definitions and Formulas | Exercises Cost Accounting

Selected Ratios and Definitions

(standard definitions; most formulas use the notations from the Berk, DeMarzo, Harford book)

Current Ratio = Current Assets / Current Liabilities;

Quick Ratio = (Current Assets - Inventory) / Current Liabilities;

Debt-to-Asset Ratio = Total Debt / Total Assets; Debt-to-value ratio = D/(E+D)

Debt-to-Equity = Total Debt / Total Equity;

Equity Multiplier = Total Assets / Total Equity;

Times Interest Earned = EBIT / Interest Payment;

Interest Coverage Ratio = Some Measure of Earnings / Interest;

Inventory Turnover = COGS / Inventory; or, Sales/Average Inventory if COGS data is not available;

Average Age of Inventory = 365 / Inventory Turnover = 365 / (Sales / Inventory);

Receivables Turnover = Annual Sales / Accounts Receivables;

Average Collection Period = 365 / Receivables Turnover = 365 / (Sales / Accounts Receivables);

Total Assets Turnover = Sales / Total Assets;

Net Profit Margin = Net Income / Sales;

ROA = Net Income / Total Assets = total asset turnover * net profit margin;

ROE = Net Income / Equity = ROA * Equity Multiplier = ROA * Total Assets / Equity;

ROE = total asset turnover * net profit margin * equity multiplier;

EPS = Net Income / Number of Common Shares Outstanding;

P/E Ratio = Market Price per Share / EPS;

Market-to-Book Ratio = Market Price per Share / Book Value per Share

Market-to-Book Ratio = Total Market Value of Equity / Total Book Value of Equity;

Dividend Payout Ratio (DPR) = Dividends / Net Income;

Retention Ratio = 1 - Dividend Payout Ratio;

Net Cash Flow = Net Income + Depreciation;

Operating Cash Flow (OCF) = Earnings before Interest and Taxes + Depreciation - Tax;

Free Cash Flow (FCF) = [EBIT x (1- Tax Rate)] + Depreciation – CAPEX – Change in NWC

Dividend Yield = Dividend per Share / Stock Price = Div1 / P0

Capital Gain Rate = (Price Next Period / Price today) – 1 = (P1 / P0) – 1 = (P1 - P0) / P0)

Holding Period Return: HPR = D1/P0 + (P1/P0 -1)

Value of a perpetuity: P = C / r where C is the perpetual cash flow and r is the discount rate

Constant Growth Model:

1/( )

Div r g

−

where Div1 is the next period dividend, rE is the equity cost of

capital and g is the growth rate in dividend.

Cost of Preferred Stock Capital; rpfd = (Divpfd / Ppfd); Cost of Common Equity Capital; rE = (Div1 / PE) + g; or

Security Market Line, SML or CAPM formula:

()

RF M RF

rr r r

= +× −

;

)]

( (E[ )

f mkt

ER r R r

=+−



WACC; rWACC = rE E% + rpfd P% + rD (1 - TC) D%

Single Cash Flow Present Value: PV = C / (1 + r)n; Single Cash Flow Future Value: FVn = C * (1 + r)n

Present Value of Annuity:

1(1 )

PV C

= ⋅



−





; Future Value of Annuity:

(1 ) 1

FV C

= ⋅



+−



Calculators

• Allowed; HP 10B, HP 10bii, HP 10BII+, TI BAII, TI BAII Plus, and TI BAII Plus Professional calculators;

or any four function calculators

• Not allowed; Graphing or Programmable calculators; iPhones with HP-10B or other emulators

Partial preview of the text

Download Financial Ratios and Calculations: Definitions and Formulas and more Exercises Cost Accounting in PDF only on Docsity!

Selected Ratios and Definitions

(standard definitions; most formulas use the notations from the Berk, DeMarzo, Harford book)

Current Ratio = Current Assets / Current Liabilities; Quick Ratio = (Current Assets - Inventory) / Current Liabilities; Debt-to-Asset Ratio = Total Debt / Total Assets; Debt-to-value ratio = D/(E+D) Debt-to-Equity = Total Debt / Total Equity; Equity Multiplier = Total Assets / Total Equity; Times Interest Earned = EBIT / Interest Payment; Interest Coverage Ratio = Some Measure of Earnings / Interest; Inventory Turnover = COGS / Inventory; or, Sales/Average Inventory if COGS data is not available; Average Age of Inventory = 365 / Inventory Turnover = 365 / (Sales / Inventory); Receivables Turnover = Annual Sales / Accounts Receivables; Average Collection Period = 365 / Receivables Turnover = 365 / (Sales / Accounts Receivables); Total Assets Turnover = Sales / Total Assets; Net Profit Margin = Net Income / Sales; ROA = Net Income / Total Assets = total asset turnover * net profit margin; ROE = Net Income / Equity = ROA * Equity Multiplier = ROA * Total Assets / Equity; ROE = total asset turnover * net profit margin * equity multiplier;

EPS = Net Income / Number of Common Shares Outstanding; P/E Ratio = Market Price per Share / EPS; Market-to-Book Ratio = Market Price per Share / Book Value per Share Market-to-Book Ratio = Total Market Value of Equity / Total Book Value of Equity; Dividend Payout Ratio (DPR) = Dividends / Net Income; Retention Ratio = 1 - Dividend Payout Ratio;

Net Cash Flow = Net Income + Depreciation; Operating Cash Flow (OCF) = Earnings before Interest and Taxes + Depreciation - Tax; Free Cash Flow (FCF) = [EBIT x (1- Tax Rate)] + Depreciation – CAPEX – Change in NWC

Dividend Yield = Dividend per Share / Stock Price = Div 1 / P 0 Capital Gain Rate = (Price Next Period / Price today) – 1 = (P 1 / P 0 ) – 1 = (P 1 - P 0 ) / P 0 ) Holding Period Return: HPR = D 1 /P 0 + (P 1 /P 0 -1) Value of a perpetuity: P = C / r where C is the perpetual cash flow and r is the discount rate

Constant Growth Model: P 0 = Div 1 / ( rE − g )where Div 1 is the next period dividend, r E is the equity cost of

capital and g is the growth rate in dividend.

Cost of Preferred Stock Capital; r pfd = (Div pfd / P pfd ); Cost of Common Equity Capital; r E = (Div 1 / P E ) + g; or

Security Market Line, SML or CAPM formula: ri = rRF + β i × ( rM − rRF ); E R ( i ) = rf + β i (E[ Rmkt ]− rf )

WACC; r WACC = r E E% + r pfd P% + r D (1 - T C ) D%

Single Cash Flow Present Value: PV = C / (1 + r)n; Single Cash Flow Future Value: FVn = C * (1 + r) n

Present Value of Annuity: (^0)

(1 ) N

PV C

r r

; Future Value of Annuity:

FVN C (1 r ) N 1

r

Calculators

Allowed; HP 10B, HP 10bii, HP 10BII+, TI BAII, TI BAII Plus, and TI BAII Plus Professional calculators; or any four function calculators
Not allowed; Graphing or Programmable calculators; iPhones with HP-10B or other emulators

Financial Ratios and Calculations: Definitions and Formulas, Exercises of Cost Accounting

Related documents

Partial preview of the text

Download Financial Ratios and Calculations: Definitions and Formulas and more Exercises Cost Accounting in PDF only on Docsity!

Selected Ratios and Definitions

(standard definitions; most formulas use the notations from the Berk, DeMarzo, Harford book)

Constant Growth Model: P 0 = Div 1 / ( rE − g )where Div 1 is the next period dividend, r E is the equity cost of

Security Market Line, SML or CAPM formula: ri = rRF + β i × ( rM − rRF ); E R ( i ) = rf + β i (E[ Rmkt ]− rf )

(1 ) N

PV C

r r

FVN C (1 r ) N 1

r

Calculators