Current Ratio = Current assets / current liabilities

Cost of Sales (COGS) = Beg Inv + Inv Purch & Expenses Ending
Inventory
Return on Capital Employed (ROCE) = Earnings for Interest & Tax / LT
Debt + Shareholders Funding OR Total Assets CL
AR Collection Period = (Avg. AR / Sales) x 365
AP Collection Period = (Avg. AP / Cost of Sales) x 365
Inventory Turnover = Cost of Sales / Avg. Inventory
Working Capital to Sales = (Inventory + AR AP) / Sales
Quality of Operating Income = OCF/Op. Income
Operating Cash Flow Ratio = OCF/CL
- assess liquidity & meet ST liability
CF to Assets = OCF/Total Assets
Cash Current Debt Coverage = (OCF Cash dividends) / current
interest bearing debt
- cash available to cover ST interest-bearing debt
CF Per Share = OCF/Common Shares Outstanding
Payments to acquire fixed assets = Current balance figure previous
year figure depreciation - disposals
Required market cap = industry multiple * number of outstanding
shares * revised EPS
Coverage ratio = EBITDA/interest expense
-how many times OCT can cover interest expense
Leverage ratio = Debt/EBITDA
-how much leverage relative to cash flow
BONDS
Haircut (%) = [(Market Value Amount Lent) / Market Value ] x 100
Interest Amount = Investment x Annualized Rate x Fraction of Year

T-Bill:
Return = Discount to Par/Amount Invested = Discount to Par/(100 Discount
to par)
Discount to Par = (100 %purch of face value)% * # of days/360 = ___ %
Purchase price = 100 Discount to par %
Annualized return = Return x (365/# of days for MM instruments)
Bank Loan:
Return = Interest rate x Fraction of the Year
EQUITIES
Dividend Yield = Div Per Share (DPS) / Share Price
Dividend Cover = EPS/DPS
- dividend cover is > 2, dividend is easily affordable
- dividend cover is < 1, unsustainable
EPS = Net Income/Number of Outstanding Shares
*compute diluted EPS values that incorporate the potential
creation of shares through convertibles or warrants.
*earnings may be adjusted (normalized) to exclude
extraordinary items such as business disposals or discontinued
businesses.
P/E Ratio = Share Price/EPS
*value for a major developed market index = ~15 and 25x.
Cyclically Adjusted Price Earnings ( CAPE) eliminate short term
distortions by looking 10 years of earnings instead of LTM
PEG Ratio = P/E Ratio/Projected EPS Growth Rate
- If PEG > 1, stock is expensive
- If PEG < 1, stock is cheap.
BONDS
Dirty Price = Clean Price + Accrued Interest
RULES:
- If a bond is bought at par value and held to maturity, then the return
is equal to the coupon rate.
- If a bond is bought at a discount and held to maturity, then the return
will be higher than the coupon rate.
- If a bond is bought at a premium and held to maturity, then the return
will be lower than the coupon rate.

Yield rather than price is used to determine whether a bond is cheap

or expensive.
-if market yield rise, bond prices fall
-if market yield falls, bond price rises
Time Value of Money
Future Value:
-Discretely Compounded: FV = PV*(1+r)^n
-Continuously Compounded: FV = PV * e^(r x n)
Continuous Compounding: PV = FV/e^(r * N)
e = 2.718281
Perpetuity: PV = CF/r
Annuity:

Present Value Annuity Factor (PVAF):

(1 + Nom. Interest Rate) = (1 + inflation rate) x (1 + real interest

rate)
NPV
NPV = -CF0 + sum of discounted future CF
NPV (A + B) = NPV(A) + NPV(B)

Higher the IRR the better.

If NPV & IRR have different results, pick NPV

Merger Analysis
Book Value or Net Assets = Assets - Liabilities
Tangible Book Value = Assets - Liabilities - Target's Existing Goodwill
Tangible Assets = Assets Targets exisiting goodwill
Net Tangible Assets = Assets - Target's Existing Goodwill Liabilities
Write-up = FMV Net Tangible Assets
Goodwill = Purchase Price FMV of Net tangible assets
Or Offer value of equity Net tangible assets Write up
100% Stock Purchase
1. Implied Offer Value = Offer Price per share x Targets share
outstanding
2. Goodwill created = offer value net tangible assets
3. Exchange ratio = Offer price per share / Acquirer share price
4. New Shares Issued = Exchange ratio x Targets Shares
outstanding
5. Pro Forma EPS = (Pro Forma Net Income + Adjustments) / Pro
forma shares outstanding
- Pro forma net income = Acquirers net income + Targets net
income
- Pro Forma Shares Outstanding = Acquirers Shares + New
Shares Issued
6. Accretion/(Dilution) per share = Pro Forma EPS Acquirer EPS
+ accretion
- dilution
7. Accretion/(Dilution) % = Accretion or dilution per share / Acquirer
EPS
8. Pre-tax synergies to breakeven = after-tax synergies needed / (1T)
After-tax synergies needed = dilution per share x pro forma
shares outstanding
100% Cash Purchase
New debt issued = offer value
-offer value = offer price x outstanding shares
1. Pre-tax Interest expense = new debt issued x interest rate
-interest rate = cost of debt
2. After-tax interest expense (impact of debt on NI) = pre-tax interest
expense * (1-T)
3. Pro Forma EPS = (Pro forma net income After Tax Interest
expense) / Pro forma shares outstanding
*after-tax interest expense on new debt would lower the pro
form earnings
*because no new shares issued, pro forma shares outstanding
= acquirers shares outstanding
-find out by NI/EPS

4. Accretion/(Dilution) per share = Pro Forma EPS Acquirer EPS

+ accretion
- dilution
5. Accretion/(Dilution) % = Accretion or (dilution) per share /
Acquirer EPS
*number of shares = net income/EPS
Pro Forma:
Pro forma debt = Acquirers debt + Targets debt + new debt
Pro forma interest expense = acquirers interest expense + targets
interest expense + interest expense based on the new debt
Pro forma EBITDA = acquirers EBITDA + Targets EBITDA
Target Pro forma ownership = new shares issued/pro forma shares
-relative in 100% stock deal to examine contribution analysis
Relative P/Es:
Acquirers P/E multiple = acquirers share price/acquirers EPS
Offer P/E multiple = offer price per share/Targets EPS
-accretive if acquirer or Pro forma P/E is higher than offer PE
-dilutive if acquire or Pro Forma P/E is lower than offer PE

Public Comparables
TSM:
Option Proceeds = Exercise price x options outstanding
Shares repurchased = option proceeds/current stock price # shares
can repurchase
Diluted Shares Outstanding = basic shares + in-the-money options
shares repurchased under TSM
Equity Value = Diluted shares outstanding x Current stock price
LTM = latest fiscal year + current period last period
Equity Performance:
P/E
Equity Value /Net Income
Equity Value/ Book Value
Enterprise Performance:
EV/ Sales
EV/ EBITDA
EV/ EBIT
LBO
Leverage Ratios:
Senior Debt/EBITDA
Total Debt/EBITDA
Coverage Ratios:
EBITDA/Interest Expense
(EBITDA CAPEX)/Interest Expense
Equity Investment/Total Capital Ratio

New debt = Total debt capacity refinancing existing net debt

Total Purchase price = total debt capacity / % debt contribution
Maximum Purchase price = total debt capacity / (1-% equity
contribution)

Equity contribution = Total Purchase price amount from lenders or

total purchase price x % equity contribution
PV (inflows) = PV (outflows)
Solve for unknown discount rate r:
IRR = [(FV/PV)^(1/n)] 1
-FV = future residual equity value = (EBITDA x exit multiple)
net debt
-PV = initial equity investment = total purchase price * max %
equity contribution
Simplified: IRR = (FV/PV)
*Dividends would increase the IRR as capital is paid to the owners
sooner.