<p> Evaluation of Financial Policy FRL 440 Formula Sheet Prepared by P. Sarmas</p><p>Tax Liability Average Tax Rate  Taxable Income</p><p>Cash Flow from Assets = Cash Flow to Creditors + Cash Flow to Stockholders</p><p>Operating Cash Flow Interest Paid Dividend Paid - Net Working Capital - Net New Borrowing - Net New Equity - Net Capital Spending Cash Flow to Creditors Cash Flow to Stockholders Cash Flow from Assets</p><p>EBIT Ending Net Fixed Assets + Depreciation - Beginning Net Fixed Assets - Taxes + Depreciation . Operating Cash Flow Net Capital Spending</p><p>Ending Net Working Capital (CA – CL) - Beginning Net Working Capital (CA-CL) Change in Net Working Capital</p><p>Ending L.T. Debt Ending Equity - Beginning L.T. Debt - Beginning Equity Net New Borrowing - Addition to Retained Earnings Net New Equity</p><p>Current Assets Current Ratio  Current Liabilities</p><p>Current Assets - Inventories Quick Ratio  Current Liabilities Cash Cash Ratio  Current Liabilities</p><p>Total Debt Total Assets - Total Equity Total Debt Ratio   Total Assets Total Assets</p><p>Total Debt Debt - to - Equity Ratio  Total Equity</p><p>EBIT Time Interest Earned  Interest</p><p>EBIT  Depreciation Cash Coverage Ratio  Interest</p><p>EBIT  Lease Pmt. Fixed Charge Coverage Ratio  Sinking Funds Interest  Lease Pmt.  1 T</p><p>Total Assets D 1 Equity Multiplier  or EM  1  Equity E D 1 TA</p><p>Sales Total Assets Turnover  Total Assets</p><p>Sales Fixed Assets Turnover  Net Fixed Assets Sales Cost of Goods Sold Inventory Turnover  OR Inventory Inventory</p><p>Receivables ACP or DSO  Sales 365</p><p>Net Income Profit Margin (ROS)  Sales</p><p>Net Income ROA  Total Assets</p><p>Net Income ROE  Common Equity</p><p>Net Income  Interest  Preferred Dividnd Return on Capital  Debt  Common Equity  Preferred Stock</p><p>EBIT Basic Earnings Power  Total Assets</p><p>Net Income Earnings per Share  No. Shares Outstanding Market Price per Share Price - Earnings Ratio  EPS</p><p>Dividend Payout Ratio = Dividends  Net Income</p><p>ROADuPont = Profit Margin * Total Assets t/o</p><p>Market Price per Share Market Value - Book Value Ratio  Book Value per Share</p><p>ROEDuPont = Profit Margin * Total Assets t/o * Equity Multiplier</p><p>ROA * b Internal Growth Rate  1- (ROA * b)</p><p>ROE * b Sustainable Growth Rate  1- (ROE * b)</p><p>Earnings Retention Ratio = b = 1 – Dividend Payout Ratio = 1- DIV/NI</p><p> t FV  PV (1 r)  PV * FVIFr,t</p><p>FV PV   FV * PVIFr,t (1 r)t</p><p> r m*t FV  PV (1 )  PV * FVIFr m ,mt m</p><p>FV PV   FV * PVIFr r m*t ,mt (1 ) m m r EAR  (1 )m 1 m</p><p>FV  PV * er*t</p><p>PV  FV * er*t</p><p>(1 r)t 1 FVA  C *    C * FVIFAr,t  r </p><p>1 1  PVA  C *   C * PVIFA  t  r,t r r * (1 r) </p><p>C PV  Perpetuity r</p><p>(1 r)t 1 FVA  Cdue *   * (1 r)  Cdue * FVIFAr,t * (1 r)  r </p><p>1 1  PVA  C *  * (1 r)  C * PVIFA * (1 r) due  t  due r,t r r * (1 r) </p><p>Reminder: In the case of frequent compounding or discounting, divide the nominal rate (APR) by “m” and multiply period by “m”. “m” is number of times interest is compounded/discounted in one period. Also, annuity interval must match the frequency (m) of compounding or discounting. 1 1  FV Bond Value  C *    t  t r r * (1 r)  (1 r)</p><p>(1+R) = (1+r)*(1+h)</p><p>Coupon Coupon Rate  FV Coupon Current Yield  VB  1 1  FV V  C *   B  t  t YTM YTM * (1 YTM )  (1 YTM )</p><p>D1 D2 D3 P0     ...... (1 r)1 (1 r)2 (1 r)3 D D D D  D 1  P  1  2  3  .....  n  n1 * 0 1 2 t n  n  (1 r) (1 r) (1 r) (1 r) r  gc (1 r) </p><p>D P  0 r D P  1 0 r  g D r  1  g P0 n Dn  D0 * (1 g) n CF NPV  t  (CF )  t 0 t1 (1 r)</p><p> n CF t  (CF )  0  t 0 t1 (1 IRR)</p><p>Last Negative Cum. CF PBP  t  CFt1</p><p> n CFt  (1 r)t PI  t1 CF0</p><p> n  Net Incomet t1 ARR  n Beginning Value Investment  Ending Value Ivestment 2</p><p> n CIF *(1 r) nt n COF  t t  t1  t n to (1 r) (1 MIRR)</p><p>Operating Cycle = Inventory Period + Accounts Receivable Period</p><p>Cash Cycle = Operating Cycle – Accounts Payable Period Cost of Goods Sold Inventory Turnover  Average Inventory</p><p>365 Inventory Period  Inventory Turnover</p><p>Credit Sales Receivable Turnover  Average Accounts Receivable</p><p>365 Receivable Period  Receivable Turnover</p><p>Cost of Goods Sold Payable Turnover  Average Payable</p><p>365 Payable Period  Payable Turnover</p><p>Beginning  End Average  2</p><p>Operating Cash Flow = EBIT + Depreciation – Taxes</p><p>Operating Cash Flow = (Sales – OC – Depreciation)*(1-T) + Depreciation </p><p>Operating Cash Flow = Net Income + Depreciation</p><p>Operating Cash Flow = (Sales – OC)*(1 – T) + T*Depreciation </p><p>Book Value of Asset = Original Cost – Accumulated Depreciation</p><p>Original Cost  Salvage Value Straight  Line Depreciation  n</p><p>VC = Q*v TC = VC + FC NI = (S – FC – VC – D)*(1-T) FC  OCF Q  general P  v FC  D Q  Accounting BEP P  v FC Q  Cash BEP P  v FC  OCF * Q  Financial BEP P  v FC DOL  1 OCF</p><p>Q(P  v) DOL  Q(P  v)  FC Q(P  v)  FC EBIT DFL   Q(P  v)  FC  Int EBIT  Int Q(P  v) DTL  DCL  DOL * DFL  Q(P  v)  FC  Int</p><p>P  P Capital Gain Yield  t1 t Pt</p><p>T R   t R  t1 T    1  2 2 2  VAR(R)  (R  R)  (R  R)  ......  (R  R) T 1  1 2 T  Standard Deviation or SD(R)  VAR(R)</p><p> n E(R)   Pr.s * Rs s1 n 2 2    Pr.s *[Rs  E(R)] s1 n 2 2      Prs *[Rs  E(R)] s1</p><p>E(Rp) = WA*E(RA) + WB*E(RB) R = E(R) + U</p><p> n  p  W j *  j j1</p><p>WA WB  ..... WN  1</p><p>E(RA) = Rf + [E(RM) – Rf]*A</p><p>E(R )  R Slope  j f  j</p><p>D1 D0 *(1 g) RE   g   g P0 P0</p><p>RE  R f   E *(RM  R f ) D RP  P0  E   P   D  WACC    * RE    * RP    * RD *(1 tc ) V  V   V  V  E  P  D</p><p>WACC = WE*RE + WP*RP + WD*RD*(1-tc)</p><p>WE + WP + WD = 1</p><p>FV  P Coupon  0 n YTM approximate  FV  2P0 3</p><p>(Revenue- Total Variable Costs - Fixed Costs - Interest)*(1- t) (EBIT  Interest)*(1 t) EPS   Number of Shares Outstanding Number of Shares Outstanding</p><p>(Revenue- Total Variable Costs - Fixed Costs - Interest)*(1- t) (EBIT  Interest)*(1 t) ROE   Equity Equity EBIT(1 T ) Vu  Ru (EBIT  Int)(1 T ) V  l WACC</p><p>VL  VU</p><p>VL  VU  Tc * D</p><p>RE  RA  (RA  RD ) * D / E  D  L  U 1 (1 T )  E </p><p>EBIT  K D(1 T) S  d K s V  S  D V  D P  0 n0 D n  n  1 0 P</p><p> (1 Tc )(1 Ts ) Vl  Vu  1   D  (1 Td ) </p><p>DPO = Dividend ÷ Net Income</p><p>Dividend Yield = Dividend per share ÷ Price per share</p><p>Modified Accelerated Cost Recovery System</p><p>Property Class Year 3-Year 5-Year 7-Year 1 33.33% 20.00% 14.29% 2 44.44% 32.00% 24.49% 3 14.82% 19.20% 17.49% 4 7.41% 11.52% 12.49% 5 11.52% 8.93% 6 5.76% 8.93% 7 8.93% 8 4.45%</p>