Balance sheet Independent Mutually

Assets Liabilities & Equity Total assets turnover =

Sales
(times) inclusive
Total assets
Current assets Current liabilities Total assets turnover * Capital intensity = 1 NPV NPV > 0 → Positive and
-Cash & equivalents Long-term liabilities NI = - Initial cost + PV of future accept highest NPV
Profit margin =
-Acc.receivable Stockholder’s equity Sales CFs NPV < 0 →
EBITDA
-Inventories -Preferred stock EBITDA margin = reject
Sales
-Others -Common stock Net income Payback method = N0 of PP < Cutoff PP < cutoff
ROA =
Fixed assets -Capital surplus Total assets
Net income Net Income Total assets
years before covering initial date → accept date
-(In)tangible assets -Accu Retained-earning ROE = = ∗ = ROA ∗ Equity multiplier cost fully + remaning CF/ CF PP > Cutoff Smallest PP
Total equity Total assets Total equity
Income statement =
Net Income
∗
Sales Total assets
∗ = Profit margin * Total of the year fully covered date → reject
Revenue Sales Total assets Total equity NPV = 0  IRR IRR > r → IRR > r
(-) Operating expense asset turnover * Equity multiplier 𝐶1 𝐶1 accept Highest IRR
-C0 + + 2 +…=0
(-) Depreciation (ROE: how much profit the firm make on the entire 1+𝐼𝑅𝑅 (1+𝐼𝑅𝑅)
IRR < r → reject
investment) →Find IRR
EBIT
ROA = ROE  No debt  No financial leverage Number of sign changing →
(-) Interest expense
EPS =
EAT (NI) number of IRR
EBT
(-) Taxes (=EBT*tc) (corporate tax)
Total shares outstanding
Price per share
Profitability index PI > 1 → accept PI > 1
P-E ratio = 𝑇𝑜𝑡𝑎𝑙 𝑃𝑉 𝑜𝑓 𝑓𝑢𝑡𝑢𝑟𝑒 𝐶𝐹
=
𝑁𝑃𝑉
+1 PI < 1 → reject Highest PI
EAT/ NI (dividends + addition to retained earnings) EPS
𝐶0 𝐶0
Total assets
Or NI = (EBIT – Interest expense)*(1 – tc) Equity multiplier Value of a firm = Market value of debt + Market value of equity
Total equity
Dividends
Div/ share = Market to book value =
Market value per share No debt Have debt (MM2)
Total shares outstanding Book value per share (MM1)
3 things about Income Statement: GAAP, non – cash Market capitalization = Price per share*Shares outstanding
items (depreciation, deferred taxes) EPS 𝐸𝐵𝐼𝑇 (1 − 𝑡𝑐) (𝐸𝐵𝐼𝑇 − 𝑖𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑒𝑥𝑝𝑒𝑛𝑠𝑒) (1 − 𝑡𝑐)
EV = Market capitalization + Market value of interesting
Types of value: book value (carrying value) – market 𝑁𝑜 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒 𝑁𝑜 𝑜𝑓 𝑠ℎ𝑎𝑟𝑒
bearing debt – Cash
value (for decision making) EV No taxes With taxes
Total tax bill
EV muliple (ratio) = M&M 1 𝐸𝐵𝐼𝑇 (1) 𝑉𝐿 = 𝑉𝑈 +
EBITDA
Tax rate Average tax rate = ROA∗retention ratio 𝑉𝐿 = 𝑉𝑈 =
Taxable income (EBT) Internal growth rate = (financial 𝑅0 𝑡𝑐. 𝐵
NWC = CA – CL 1− ROA∗retention ratio
ROE∗plowback ratio leverage, firm
Debt service = principal + interest expense Sustainable growth rate =
1− ROA∗plowback ratio value)
CF (A) = CF (B) + CF (S) EFN = Total assets* r- Current liabilities * r – NI (1+r) (1 – 𝑉𝑆 = 𝑉𝐿 − 𝐷𝑒𝑏𝑡 (2)
CF (A) = OCF – CapEx - delta NWC dividend payouts ratio) M&M 2 𝐵 𝐵
𝑅 = 𝑅 + (𝑅 − 𝑅 )(1 − 𝑡𝑐)
𝑅𝑆 = 𝑅0 + (𝑅0 − 𝑅𝐵 ) 𝑆 𝑆 0 0 𝐵

▪ OCF = EBIT + Depreciation – Current tax Single cash flow (financial 𝑆

▪ CapEx = Purchase of FA – Sale of FA = Ending NFA – - One period case: FV = PV (1+r) leverage, firm
Beginning NFA + Depreciation - Multiple period case: FV = PV (1 + 𝑟)𝑛 value)
▪ Deta NWC = NWC (year t) – NWC (year t-1) Different compounding period (3) WACC =
𝑆
𝑅 +
𝐵
𝑅 WACC = 𝑅 + 𝑅 (1 −
𝑆
𝑆
𝐵
𝐵
𝑆+𝐵 𝑆 𝑆+𝐵 𝐵
𝑆+𝐵 𝑆+𝐵

CF (B) = Interest – Net new borrowing = = Interest – 𝑟

FV = C0. (1 + )𝑚∗𝑇
𝑡𝑐)

(new long term debt issued – debt retirement) (debt 𝑚 𝑅𝑆 : 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑒𝑞𝑢𝑖𝑡𝑦/ Required return on equity/ return on unlevered firm
r : annual percentage rate 𝑅0 : cost of capital / cost of equity if the firm was all – equity financed/ return
issued: nợ có, debt retired: nợ phải trả) = Interest – T years on unlevered equity
(end.long term debt – beg. long term debt) Continuous compounding (biggest): C0*𝑒 𝑟.𝑇 𝑅0 : Interest rate / Cost of debt
WACC: ROA
CF (S) = Dividends – Net new equity raised APR and EAR (Effective annual yield) B: Market value of bond/ debt
= Dividends – (stock sold – stock repurchased) 𝑟 (𝐴𝑃𝑅) 𝑚∗𝑇
S: Market value of stock / equity

Common sizes: 100% assets (BL) and 100% sales (IS) EAR = (1 + ) −1 Operating cycle = Inventory period + Account receivable periods
𝑚
EBITDA = EBIT + Depreciation + Amortization Perpetuity PV =
C Cash cycle = Operating cycle – Accounts payable periods =
Current assets r Inventory period + Acc. receivable periods – Acc.payable periods
Current ratio = Growing Perpetuity PV =
C
COGS
Current liabilities
Current assets−Inventory r−g Inventory turnover = (times)
Inventory
Quick ratio = Annuity: 365
Current liabilities
Cash (1+𝑟)𝑛 −1 1− (1+𝑟)−𝑛 Days’ sales in inventory = (days)
Cash ratio = FV = C. [ ] PV = C. [ ] Inventory turnover
Current liabilities 𝑟 𝑟 Sales
Total debt Growing annuity Receivables turnover = (times)
Total debt ratio = Account receivables
365
Total assets 1+𝑔 𝑛
Total debt 1− ( ) Days’ sales in receivables (ACP) = (days)
Debt - equity ratio = PV = C1 * 1+𝑟
FV = PV (1 + 𝑟)𝑛 Inventory turnover
Total equity 𝑟−𝑔 Sales
EBIT Due annuity = Ordinary annuity * (1+r) Payables turnover = (times)
Time Interest earned ratio (TIE) = (more – Account payables
Interest Compound (n0 of periods) – Annuity (n0 of payments) Days’ sales in payables =
365
(days)
better)
EBITDA
Value of a firm = Market value of debt + Market value of Payables turnover
Cash coverage ratio = equityz
Interest
Cash flow available =
Interest bearing debt
(the ability to Tax shield = PV of (tc. rB. B)
EBITDA
Cash + other CAs + Fas = CLs + Longterm debt + Equity
pay interest unit debt)

Present value of the firm Partnership: General partnership, limited partnership

𝐷𝐼𝑉
𝑉0 = 𝐷𝐼𝑉0 + 1 - Inexpensive and easy to firm, complicated written
1+𝑅𝑆
documentss (licenses, fees…)
𝐷𝐼𝑉1 − 𝐷𝐼𝑉0 = s * (t * 𝐸𝑃𝑆1 − 𝐷𝐼𝑉0
𝑃𝑟𝑖𝑐𝑒 𝑏𝑒𝑓𝑜𝑟𝑒 𝑠𝑡𝑜𝑐𝑘 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑
- General partnership: unlimited liability for all debts
Price after stock dividend = (depends on contribution) -> difficult to raise large amount
1+𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑠𝑡𝑜𝑐𝑘 𝑑𝑖𝑣𝑖𝑑𝑒𝑛𝑑
Synergy = 𝑉𝐴𝐵 − (𝑉𝐴 + 𝑉𝐵 ) of cash
*Corporation: flat tax rate (21%) (without being - Income from a
affected by taxable income) partnership is taxed as personal income to partner
Total tax bill = EBT * tc Disadvantages of sole proprietorship and partnership
* LLC/ Proprietorship/ partnership: 7- tax bracket - Unlimited liability
Taxable income Tax rate - Limited life of enterprise
0 – 9525 10% - Difficult to transfering ownership
9235 – 38700 12% - Difficult to raise cash
38700 – 82500 22% Corporation
82500 – 157500 24% - Ownership is represented by shares of stock -> can
transfer to new owner (no limit)
157500 – 200000 32%
- Sepate from owners -> unlimited life
200000 – 500000 35%
500000 37%
3 types of decisions: Capital budgeting, Capital
structure, Working capital

Ending acc. Receivable =starting acc. Receivable +sale – collection

Simple interest rate = C * r * t
The pawn shop adds 2 percent to loan balances for every
two weeks a loan is outstanding. What is the effective
annual rate of interest?
A)79.97% B)73.08 % C) 51.21 % D) 67.34 % E) 83.43%
Answer: D. EAR = 1.02^(52/2) - 1
EAR = .6734, or 67.34%
period−ACP
Sole proprietorship Period: Current sales collected on period =
Period
Owned by one person, has unlimited liability for Cash disbursement  Payments are made
business debts, obigation. No distrinction between Quarter n disbursement (x period, quarter n purchase) =
personal and business assets n−x 𝑥
(𝑜𝑓 𝑞𝑢𝑎𝑟𝑡𝑒𝑟 𝑛 𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑) + (𝑜𝑓 𝑞𝑢𝑎𝑟𝑡𝑒𝑟 𝑛 − 1)
n n
Cheapest business to form EFN: pro forma statement
Few gov. regulations to satisfy Projected addition to R.E
No corporate income taxes. All profits → individual = PM. Projected sales. (1- Div payout)
income
Life is limited by the life of sole proprietorship