EQUATION SHEET
Principles of Finance
Exam 1
FINANCIAL STATEMENT ANALYSIS
Net cash flow = Net income + Depreciation and amortization
DuPont Equation: Return on Assets (ROA)
ROA Net profit margin × Total assets turnover
Net income
Sales

Sales
Total assets
×
=
Net income
Total assets
DuPont Equation: Return on Equity (ROE)
ROE 
 Equity multiplier
ROA
Net income
Total assets



Pr ofit  Total assets  
margin
turnover 
 Net income



Sales

Total assets
Common equity
Equity
multiplier
 Total assets

Total assets  Common equity
Sales
=
Net income
Common equity
THE FINANCIAL ENVIRONMENT
Net proceeds from issue = Amount of issue – Flotation costs
= (Amount of issue) x (1 – Flotation costs stated as a %) – (Other costs stated in $)
= (Amount of issue) x (1 – F) – Other costs
Amount of issue 
(Net proceeds)  (Other cos ts) (Amount needed) + (Other costs)

(1  F)
(1  F)
TIME VALUE OF MONEY
Lump-sum (single) payments:
FV n = PV(1 + r)
PV =
n
 1 
FV n
=


FV
n
n
(1 + r ) n
 (1 + r ) 
Annuity payments:
 n1

 (1 + r )n - 1
t
=
PMT
(1
+
r
=
PMT


)


FVA n
r


 t=0


n1





 (1 + r )n - 1



FVA(DUE )n = PMT  (1 + r )t  (1 r) = PMT  
  (1 + r)
r





 


 t=0


1 - 1 n 
 n
1 
(1 + r) 
 = PMT 
PVA n = PMT 
t


r
 t=1 (1 + r) 



 1 - 1 

 n  1 

 (1+ r )n 


PVA(DUE )n = PMT  
(1 r) PMT  
  (1 + r)
t
r
 t1  (1 r) 


 


Perpetuities:

Present value of a perpetuity = PVP =
Payment
PMT
=
Interest rate
r
Uneven cash flow streams:
n1
n-1
FV CFn = CF1(1 + r )
+ ... + CFn(1 + r )0 =
 CF (1+ r )
t
t
t=0
 1 
 1 
PV CFn = CF1 
+ ... + CFn 
=
1
n
 (1 + r ) 
 (1 + r ) 

n

 CF  (1+ r ) 
1
t
t
t=1
Interest rates (yields):
Periodic rate = rPER =
r
Stated annual interest rate
= SIMPLE
Number of interest payments per year
m



Number of = n
 Number  Number of int erest  nYRS m
int erest periods PER of years
payments per year
m
 r SIMPLE 
Effective = EAR =r
m
EAR   1 +
 - 1.0 = (1 + rPER ) - 1.0
annual rate
m


Annual percentage rate = APR = rPER x m
Value of an asset 



CF1
CF2
CFn


(1 r)1 (1 r)2

(1 r)n
n


 (1r)
t1
CFt
t