This summary
+380.000 other summaries
A unique study tool
A rehearsal system for this summary
Studycoaching with videos
Remember faster, study better. Scientifically proven.
Summary  Fundamentals of Corporate Finance

2.3 Balance Sheet Analysis

How do you calculate MarkettoBook Ratio?Market Value of Equity devided by Book Value of Equity

How do you calculate Book DebttoEquity Ratio?Total Debt devided by Book Value of Total Equity

How do you calculate Market DebttoEquity Ratio?Total Debt devided by Market Value of Total Equity

How do you calculate Current Ratio?Current Assets devided by Current Liabilities

How do you calculate Quick Ratio?Current Assets  Inventory devided by Current Liabilities

2.4 The Income Statement

How do you calculate a Gross/Net Profit/Operating Margin?By deviding by Sales

How do you calculate the Leverage Ratio? (also Interest coverage ratio (TIE))Operating Income devided by Interest Expense

How do you calculate the Return on equity/assets?By deviding Net Income by Assets/Book Value of Equity

How do you calculate the Pricetoearnings ratio?Share Price divided by Earning per Share

How do you calculate Accounts receivable days?Account Receivable divided by Average Daily Sales

How do you calculate Fixed Asset Turnover?Sales divided by Fixed Assets

How do you calculate Total Asset TurnoverSales divided by Total Assets

How do you calculate Inventory Turnover?Costs of Goods Sold divided by Inventory

5.1 Interest Rate Quotes and Adjustments

When you buy a car with borrowed money, of what is the interest the price?The price to be able to convert money paid in the future to a car right now

Why is it important to convert interest rates to the same time unit before comparison?Because you cannot compare a daily interest rate with a yearly interest rate

What is a different name for the effective anual rate?The annual percentage yield

What is the effective annual rate?The effective interest paid in a year time unit

How do you calculate the equivalent interet rate at a different period length? E.g. EAR of r to monthly, or 5 yearly?(1+r)^n  1
So for monthly n=1/12
For 5 yearly n=5 
In what term is the common way to quote interest rates?Annual percentage rate

What does the annual percentage rate do with compounding?It doesn't take it into account

What is the actual effective interest rate of a 6% APR compounded monthly?6/12 = 0.5 monthly interest
1.005^12  1 = 6.17% after 12 month 
Can the APR be used as a discount rate?No, you have to take compounding into account
Read the full summary
This summary. +380.000 other summaries. A unique study tool. A rehearsal system for this summary. Studycoaching with videos.
Latest added flashcards
What formula is known as the WACCequation?
r_{wacc} = r_{E}E% + r_{pfd}P% + r_{D}(1T_{C})D%
What WACC should one use for expansion/acquisition into an industry the initial firm is not active in?
The wacc of the firm being acquired/a comparable firm
What three steps does one follow when applying the WACCmethod?
1 Determine the incremental free cash flow of the investment
2 Compute the weighted average cost of capital
3 Compute the value of the investment, including tax benefit of leverage by using the WACC
2 Compute the weighted average cost of capital
3 Compute the value of the investment, including tax benefit of leverage by using the WACC
What is a debtequity ratio?
A ratio of the market value of debt to the market value of equity
What activity is referred to as the WACCmethod?
Discounting future incremental free cash flows using the firm's WACC
What is the levered value of a project?
The value including the benefit of the interest tax deduction
What formula does one use to determine net debt?
Net debt = Debt  Cash and RiskFree Securities
When determining the cost of common stock capital, what method is prefered?
CAPM
With what formula does one calculate the Cost of Equity with the Constant Dividend Growth Model?
Cost of Equity = Div_{1}/P_{E} + g
How does one estimate the market risk premium?
comparing historical returns on a market proxy to historical riskfree rates