Compiled By: - CA. Aditya Kumar Maheshwari

(Operating Cash Expense + Interest + Tax) 365

Debt Equity = Ratio

Debt Equity

(Debt = Long Term Funds & Debentures))

Equity Ratio

=

Equity Equity + Total Debt

Capital Gearing Ratio

=

Debt Ratio

=

Proprietary Ratio

EPS

Yield

Total Debt or TOL Equity + Total Debt (TOL)

=

OP Ratio = Operating Profit Sales

Equity or Equity Total Assets Equity + TOL NP Ratio = Net Profit Sales

=

=

(Equity = (ESC+PSC+R&S))

Long Term Funds + PSC Equity Shareholder’s Fund

MV / BV Ratio

PE Ratio = or Price Earning Ratio

Market Value per Share Book Value per Share Market Price Per Share Earning Per Share

Du Pont Chart ROE = PAT * Sales * Net Assets Sales Net Assets Net Worth (NW) ROE =

WIP TR =

FG TR =

Material Consumed Avg Stock of RM

Factory Cost Avg Cost of WIP

COGS Avg. Stock of FG

Capital TR =

Fixed Assets TR =

WC TR =

Sales `Avg. CE

Sales Avg. Fixed Assets

Sales Avg. WC

Debtors TR = Sales Avg. Debtors Earning Yield =

Creditors TR = Raw Material Purchase or COGS Avg. Creditors EPS*100 Market Value per Share

→ 1.1“÷” 5 times “=”

AV @ 10% for 5 yrs (AV5)

→ 1.1 “÷” 5times “=” “GT”

(Assumption: The Cash Flow is at the beginning of year)

→ 1.1+1*1.1+1*1.1+1*1.1+1

PAT EBIT

Future Value of Present Amt (FVn)

=

*

= Equity + LTL – Non Trade Invt. = FA + Trade Invt. + WC

PBIT = PBIT + Non Trade Expense – Non Trade Income

Time Value of Money

Ratio Analysis

CE Or CE

ROA = PBIT or PAT Total Assets

(b)

N = No. of Period

=

n

R * (1+i) – 1 i

R = Equal Amt to be received / paid for n period i = Interest Rate per period

Present Value of Growing Perpetuity EMI

= =

Amount

k = Discounting Rate

k–g

g = Growth Rate

Total Principal Amt AV Factor of the period

=

365 Raw Material Turnover Ratio

WIP Holding Period (In Days)

=

365 WIP Turnover Ratio

FG Holding Period (In Months)

=

12 FG Turnover Ratio

Debtor Collection Period (In Weeks)

=

52 Debtor Turnover Ratio

Creditor Payment Period (In Months)

=

12 CreditorsTurnover Ratio

Operating Cycle

= (RM+WIP+FG) Storage Period (+) Debtors Collection Period (-) Creditors Payment Period

RM storage Period

=

Creditors Payment Period

=

Average A/c Payables Avg. credit purchase/ day

Debtors Collection Period

=

Average A/c Receivables Avg. Credit Sales per day

Finished Goods Storage Period

= Average stock of Finished goods Avg. cost of goods sold per day

IRR = Base Rate(Min) +

ARR (Accounting rate of Return)

D1 = D0 (1+G)

Indifference point: (Where EPS of 2 Alternatives are Same) (EBIT – I1)(1 − t) = (EBIT − I 2) (1 − t) E1 E2

Δ in Rate * Δ Desired(Amt) from Base Δ in Amount

(This is simple unitary method formula, practice IRR Calculation)

Ke = D1 P0

+ G

Average stock of RM Avg. cost of RM Consumption/day

Effective Cost = (Factoring Commission + Interest) – (Savings on Factoring) of Factoring Net amount Received from Factor

DCF (Discounted Cash Flow Method) / Growth Method:

Modigillani Miller Approach (Assuming no PSC): Ke = Ko + D (Ko – Kd) D = Debt or Loan E E = Equity

EBIT E 1 & E2 I 1 & I2 t

RM Storage Period (In Days)

Rm = Rate of return of Mkt Rf = Risk free return b = Beta

= Indifference point = Number of Equity Shares in Alternative 1 & 2 = Interest in Alternative 1 & 2 = Tax-rate

Overall Cost of Capital Ko = (Kd * D) + (Kp* P) + (Ke * E) D+P+E

n

Period

ROE = PAT Equity or NW

Ke = Cost of equity

Ke = D1 D1 = Dividend of year 1 P0 P0 = Price of year 0 Earning Price Approach: Ke = E1 E1 = Earnings of year 1 P0 Realized Yield Approach: Ke = D1 + (P1-P0) P1 = Price of year 1 P0 Capital Asset Pricing Model Approach (CAPM):

(e)

I = Interest Rate per

Future Value of Annuity

RV = Redn Value

Ke = Rf + b ( Rm – Rf)

P0 (1 + i) P0 = Present Amt

Note: (Fin. Leverage Formula in Du Pont Chart is different.)

NP = Net proceeds/Mkt. Price

Cost of Equity / Retained Earnings: (a) Dividend Price Approach:

(f) → 1.1 “*” 4 times “=”

PD NP

2

(c)

(Assumption: The Cash Flow is at the end of year)

Compounding of Rs 1: Future Value @ 10% for th 5 yr (FV5)

K p = Cost of Pref. Shares PD = Preference Dividend

Cost of Redeemable Preference Shares: PD + (RV – NP) Kp = Cost of capital Ke = N PD = Pref. Dividend (RV + NP) NP = Net Proceeds

(Assumption: The Cash Flow is at the end of Year)

ROE = Profit Margin * Assets Turnover * Financial Leverage

ROI or ROCE = * PBIT Capital Employed

Kp =

(d)

Discounting of Rs. 1: th PV@10% for 5 yrs (PV5)

Future Annuity Value @ 10% for 5 years (FAV5)

Profit Margin * Assets Turnover * Equity Multiplier

Alternative Formula, ROE = EBIT * Sales * Sales Net Assets

Cost of Irredeemable Preference Shares:

Calculation Steps through Calculator:

(PAT - Preference Dividend) No of Equity Shares

=

2

Book Value Per Share = Net Worth-Pref Sh.Cap No. of Equity Shares

PV Ratio = Contribution Sales

DPS * 100 (Dividend Per Share) MPPS (Market Price Per Share)

Cost of Redeemable Debentures: I (1 – t) + (RV – NP) NP = Net proceeds Kd = N ___ RV = Redemption Value (RV + NP) N = No. of Yrs of Redemption

Turnover Ratios (TR) RM TR =

t = Tax rate NP = Net proceeds/market price

Working Capital Management

Quick Assets Cash Expenses per Day

Ratio Analysis

Ratio Analysis

Cash Expense per day =

=

Debt Service Coverage Ratio (DSCR) n Earnings Available for Debt Service or PAT + Dep + Interest Debt Service Commitments (Interest + Installment)

Kd = I (1 – t) NP

Working Capital Management

Absolute Liquidity or = (Cash & Bank +Mkt. Sec.) Cash Ratio CL Basic Defense Interval

Ratio Analysis

PBIT Interest

K d = Cost of Debt I = Interest amt

Investment Decision

Interest Coverage Ratio =

Cost of Irredeemable Debentures/Debt:

=

NPV

=

Payback period

=

PI

=

Financial Leverage: (FL)

E = Equity

Alternative Formula: OL =

D = Debt P = PSC

Tandon Committee: Maximum Permissible Bank Finance =

Average Annual Net Income Initial Investment or Average Investment PV of Inflow (-)

PV of Outflow

Total initial capital investment Annual CFAT and other Annual Inflows PV of Inflow PV of Outflow EBIT or EBT

EBIT EBIT - Interest

% Change in EBIT % Change in Sales or Contribution

FL

=

% Change in EBT % Change in EBIT

CL

=

% Change in EBT or PAT or EPS Change in Sales %

75% of (CA-CL) or (75% of CA) – CL or {75% of (CA- CCA)} – CL Method 1

Method 2

Method 3

Where, CCA is Core / Permanent Current Assets

Baumol’s Economic Order Quantity Model Cash = Deposit transaction.

2AO C

Cash Deposit = Optimum cash balance A = Annual cash disbursement

O =

Fixed cost per

C =

Cost of Rs. 1 p.a.

Leverages

or Acid Test Ratio

Financing Decision

= QA or QA (QA = CA – Stock – Prapaid Exp.) or Liquid Ratio QL CL (QL = CL – Bank OD - CC)

Financing Decision

Quick Ratio

Dividend Coverage Ratio (CR) Pref. Div. CR Div CR Eq. Div. CR = = = ____PAT_______ PAT PAT – Pref. Div. Pref. Div Pref. Div & Eq. Div Equity Div.

Financing Decision

CA CL

Working Capital Management

=

Time Value of Money

Ratio Analysis

Current Ratio

Ratio Analysis

Important Formulae: Financial Management (CA - IPCC)

Operating Leverage: (OL) Combined Leverage: (CL)

Cont. or EBIT

Contribution Cont. – Fixed Cost

Contribution or (OL * FL) EBT