Summary
Summary Finance formulas
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Finance formulas at a glance.
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Formules Finance.1. Real risk-free interest rate = risk- free rate – inflation premium
2. Real risk-free fisher = real rate + rate of inflation + real rate x inflation
3. Nominal interest rate = reel risk-free rate + inflation premium + default risk premium +
maturity risk premium + liquidity risk premium
4. Nominal interest rate = Real rate of interest + inflation risk premium
5. Sales – expenses = profits
6. Gross profit margin = gross profits/sales x 100 =
7. Operating profit margin = operating income / sales x 100 =
8. Net profit margin = net income/ sales x 100 =
9. Beginning retained earnings + net income the year – dividends paid during the year =
ending retained earnings
10. debt ratio = total liabilities/total assets
11. Current ratio = current assets/current liabilities
12. Net working capital = current assets – current liabilities
13. Cash collections from sale = sales – change in accounts receivable
14. Net income + depreciation +/- Increase/decrease in accounts receivable +/-
increase/decrease inventory +/- increase/decrease other current assets +/-
increase/decrease in accounts payable +/- decrease/increase accured expenses =
cashflow from operations
15. ACID-test = cash + accounts receivable/current liabilities
16. Days in receivables = accounts receivable/daily credit sales of accounts receivable/annual
credit sales/365
17. Annual credit sales/accounts receivable = receivable turn over ratio
18. Days inventory inventory/daily cost of goods sold = inventory/annual costs of goods
sold /365
19. Operating return on assets = operating profits/total assets x 100
20. operating return on assets = operating profits/sales x sales/total assets
21. Operating profit margin = operating profit/sales
22. Fixed assets turnover = sales/net fixed assets
23. Debt ratio = total debt/total assets x 100
24. Times interest earned = operating profits/interest expense
25. Return on equity (ROE) = net income/total common equity x 100
26. Market values ratio P/E = market price per share/earnings per share
27. Price book ratio = market price per share/equity book value per share
28. Effective annual rate (EAR) = (1+ APR or quoted annual rate/ compounding periods per
year (M) =
29. Periodic rate = APR or quoted annual rate/compounded periods per year
30. Investor’s required rate of return = K(cost of capital) = return/investment
31. After-tax cost of debt = bondholders required rate of return x 1 – tax rate
32. Net proceeds = issue price – flotation cost
33. Cost of preferred stock = Dp/Pn = preferred stock dividend per share/net proceeds (issue
price – flotation costs)
34. Investors rate of return (retained earnings) K = D1/P + g = K = dividends expected one
year hence/price of common stock + growth rate
35. Investors rate of return (new issues) K = D1/NP + G = K = dividends expected one year
hence/ net proceeds per share + growth rate
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