Appendix: Basic Finance Formulae
Ratios 

Current Ratio 
= CA / CL 
Quick Ratio 
= (CA – Invt’y) / CL 
Days Sales Outstanding 
= (AR / Credit Sales) × 360 
Inventory Turnover 
= COGS / Invt’y 
Debt to Net Worth 
= Total Debt / Total Equity 
Debt to Total Assets 
= Total Debt / Total Assets 
Times Interest Earned 
= EBIT / Interest Expense 
Gross Profit Margin 
= Gross Profits / Total Sales 
Operating Profit Margin 
= Operating Profits / Total Sales 
PreTax Profit Margin 
= PreTax Profits / Total Sales 
Net Profit Margin 
= Net Profits / Total Sales 
Return on Assets 
= EBIT / Total Assets 
Return on Equity 
= Net Income / Total Equity 
Sales to Fixed Asset Turnover 
= Total Sales / FA 
Sales to Total Asset Turnover 
= Total Sales / Total Assets 
Price/Earnings Ratio 
= Common Share Market Price / Earnings Per Share 
Dividend Yield 
= Total Dividends / Common Share Market Price 

= Dividends Per Share / Earnings Per Share 
Payout Ratio (PR) 
= Total Dividends / Net Income 

= Dividends Per Share / Earnings Per Share 
Retention Rate (RR)

= (Net Income – Total Dividends) / Net Income = 1 – PR 
PR + RR

= 100% 
COGS  = Beginning Inventory + Purchases – Ending Inventory 
Depreciation Expense  
StraightLine  = (Cost – Salvage Value) / Number of Years 
SumoftheYears’ Digits  = (Cost – Salvage Value) x (Reverse Years / SOYD) 
Double / Declining Balance  = (Declining Balance) x (Straightline Rate) 
Tax Shield  = (D) (T) 
Free Cash Flow 
= EBITDA (1 – T) + Depreciation (T) – Necessary Capital Expenditures – (Increase in Net Working Capital) 
External Funds Needed 
= [(A_{0}/S_{0}) ΔS] – [(AP_{0}/S_{0}) ΔS] – [(M_{0}) (S_{1}) (RR_{0})] 
P_{0} 
= (D_{0}) (1 + G) / (R – G) 
D_{1} 
= (D_{0}) (1 + G) 
R 
= (D_{1}) ÷ (R G) 
R 
= (FV / PV) ^{1/n} 1 
R_{M} 
= R_{F} + (R_{M} – R_{F}) β_{M} 
R_{P} 
= R_{F} + (R_{P} – R_{F}) β_{P} 
Market Risk Premium (MRP) 
= R_{M} – R_{F} 
Portfolio Risk Premium (PRP) 
= R_{P} – R_{F} 
Weighted Average Portf. Ret. 
= R_{P} = ∑ (w_{i}) × (R_{i}) 
Variance 
= σ^{2} = Σ(x_{i} – x)^{2} ˜ (n – 1) 
Operating Breakeven Profit 
= PQ = VQ + F 