FIN201 Solutions Cheat Sheet, Cheat Sheet of Finance

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*Cash flow from assets = Cash flow to creditors (bondholders) - Cash flow to stockholders (owners) . or Cash flow from assets = Operating cash flow - Net capital spending - Change in net working capital (NWC) ewhere: (eWay * Operating cash flow = Earnings before interest and taxes (EBIT) - Depreciation - Taxes *Net capital spending = Ending net fixed assets - Beginning net fixed assets - Depreciation *Change in NWC = Ending NWC = Beginning NWC *Cash flow to creditors = Interest paid - Net new borrowing *Cash flow to stockholders = Dividends paid - Net new equity raised Basic concepts * Assets = Liabilities + Shareholder’s equity *Payout ratio = cash dividends/net income Retention ratio = retained earnings/net income or (1-payout ratio) Internal growth rate = (ROA x retention ratio) / (1-ROA x retention ratio). The internal growth rate is the maximum growth rate that can be achieved with no external financing of any kind. Sustainable growth rate = (ROE x retention ratio) / (1-ROExretention ratio). * Assets — Comes in left side of balance Tense sheet Leelee -e-Le| JET Tal 4 * Liabilities and shareholder’s equity — Comes in right side of balance sheet ACT Aes els d Current ratio = total current assets/ total current liabilities *Quick ratio = quick assets or current assets — inventory — prepaid expenses/ total current liabilities. Working capital = current assets — current liabilities *Cash ratio = cash / current liabilities ‘*Net working capital to total assets = Net working capital / Total assets *Interval measure = Current assets / Average daily operating costs Profitability ratios *Gross profit Margin = Gross profit / Sales (operating revenue) Net Profit margin: = net income / Sales (operating revenue) Net (gross) ROA = net income / average total assets. *ROA = profit margin x asset turnover ROE = net income/ average stockholders’ equity *ROE = profit margin x asset turnover x equity multiplier (Du-Pont Analysis) The sustainable growth rate is the maximum growth rate that can be achieved with no external equity financing while maintaining a constant debt—equity ratio. ae iales} Activity ratios *Total asset turnover = Sales (operating revenue) / total assets(average) ‘Receivables turnover = Sales (operating revenue) /Receivables (average) ‘*Average collection period = Days in period or 365 days /Receivables turnover “Inventory turnover = cost of goods sold/inventory(average) Days in inventory = Days in period or 365 days / inventory turnover *NWC turnover = Sales / NWC Debt ratios: debt ratio = debt/assets; *Debt-to-equity ratio; equity multiplier = assets/ equity *Times interest earned / Interest coverage = EBIT/ interest expense ‘*Long term debt ratio = Long term debt / (Long term debt + total equity) *Cash coverage ratio = EBIT + Depreciation / Interest Gere eee ua NEVA eae ea ears value of the firm P/E ratio: current price of share / Earnings per share *PEG ratio = Price earning ratio / Earnings growth rate Price sales ratio = Price per share / Sales per share *EPS: Net Income / Outstanding shares Dividend yield = dividend per share/ market price per share. *Market-to-book value: Market value per share / Book value per share *Tobin Q’s ratio = Market value of assets / replacement cost of assets