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Liquidity Formulas


current Ratio

current assets/current liabilities

quick ratio

(current assets-inventory)/(current liabilities)

Average collection period

AR/(credit sales/365)

A/R Turnover

Credit Sales/Accounts Receivable

Inventory Turnover


Efficiency Ratios


Total Asset Turnover

Sales/total Assets

Fixed Asset Turnover

sales/fixed Assets


operating income/total assets

Financing Ratios


Debt Ratio

Total Liabilities / Total Assets

Times Interest Earned

EBIT/Interest Expense

Profitability Ratios


Return on Assets (ROA)

NI/total assets

Return on Equity (ROE)

NI/total equity

Gross Margin

Gross Profit/sales

Operating Margin


Net Margin


Dupont Framework

ROE= Net Margin x Asset Turnover x Asset to Equity

Dupont Framework

ROE=NI/Sales x Sales/Assets x Assets/Equity

Other Formulas


Free Cash Flow to the Firm

FCFF=EBIT - Cash Tax Payments + Depreciation - CAPEX - Increases in NWC


NWC=current assets - current liabilities (changes from two balance sheets); CAPEX = gross PP&E changes from two balance sheets.

Economic Value Added

EVA = NOPAT - WACC(Costly Capital)

Free Cash Flow to Equity Holders

FCFE = NI + Depreciation - CAPEX - Increases in NWC + Increases in Long-term Debt

Discretionary Financing Needed (DFN)

DFN = Projected total assets - projected total liabilities - projected owners' equity

Future Value

Present Value x (1 + i) to the n'th power

Present Value

FV/(1 + i) to the n'th power

Present Value of a perpetuity


balance sheet

assets = liabilities + Owners' Equity

Retained Earnings

Change in RE = NI - Dividends ; Old RE = NEW RE + NI - Div

Net Income

Dividends + Change in RE


Dividends = (old RE + Net Income) - New RE

Sustainable Growth Rate (SGR)

SGR = ROE (1-b)=NI/Sales x Sales/Assets x Assets/Equity x (1-b)

Dividend payout rate (b)

Dividends/Net income

Cash Flow from Operations: Indirect method(CFO)

Net Income + Non-cash expense + decrease in operating asset accounts - increase in operating asset accounts + increase in operating liability accounts - decrease in operating liability accounts.

Cash flow from Investing (CFI)

net PP&E + depreciation expense

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