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Summary Corporate Finance: all formulas + explanations
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List of all formulas needed for all possible calculations + explanations of each
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Formula sheet:Chapter 3:
Net working capital:
current assets - current liabilities
Total cash flow:
→ to evaluate the amount of cash a company generates or consumes during a specific period
𝑂𝑝𝑒𝑟𝑎𝑡𝑖𝑛𝑔 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤 − 𝑐ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑁𝑊𝐶 − 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑠𝑝𝑒𝑛𝑑𝑖𝑛𝑔
Du Pont Identity:
→ ROE more in detail
(Net income/sales) x (sales/assets) x (assets/ equity)
Ratios:
→ are all in the formula sheet in the exam
→ down is the connections
Convert Sales in Pounds to Dollars:
Net Sales in Dollars=Sales in Pounds/Conversion Factor
Chapter 4:
Future value:
→ This calculates the future value of an investment after x years with an interest rate,
compounded annually.
FV = C x (1 +r) ^t
- Total Interest=Future Value (FV)−Present Value (PV)
- Simple Interest=Present Value (PV)×interest rate×number of periods
- Compounded Interest=Total Interest−Simple Interest
, - FV semi annual =Present Value (PV)×(1+semiannual rate)/number of periods
Present value:
→ This calculates the present value (how much you need to invest today) if you need z
dollars in x years with a discount rate.
PV= C x FV/ (1 + r) ^t
- Simple Interest for PV= C/ (1+interest rate×number of periods)
- Time = ln (FV / PV) / ln (1+ r)
- Rule of 72 = Years to Double= 72/ interest rate → if more than double multiply 72
- Interest rate = ( FV / PV ) ^1/t -1
Chapter 2:
Cumulative Voting (Board of Directors):
→ This calculates the cost to secure a seat on the board of directors with cumulative voting.
1. Shares required: (shares outstanding/ (number of directors+1) ) +1
2. Cost=Shares required×Price per Share
Chapter 5:
Present Value of a Perpetuity:
→ This calculates the present value of a perpetuity, an investment that pays a fixed amount
forever.
PPV= C/r
Present Value of a Delayed Perpetuity:
→ This calculates the present value of a perpetuity that starts after a delay.
DPPV= C/r / (1+r) ^t
, Perpetuity with Growth
→ This calculates the present value of cash flows that grow at a constant rate forever.
GPPV= C / r - g
Perpetuity with Growth and delay:
→ This calculates the present value of perpetually growing cash flows that start after a delay.
GDPPV =C/ r - g × 1/ (1+r)^t
Simple perpetuity Growth:
→ This calculates the present value of a perpetually growing cash flow that starts from year
one.
PPV1= C x (1 + g) / r - g
Perpetuity Finding Discount Rate (Indifference Rate):
→ This calculates the required discount rate for a perpetuity when the present value and cash
flows are known.
r = C / PV
Present Value of an Annuity:
→ This calculates the present value of an annuity with regular, equal payments for a set
number of periods.
PVA= C x (1/r - 1/ r x (1+r) ^t)
- Finding C = PV / (1/r - 1/ r x (1+r) ^t)
- Finding T = ln ((FV x r/ C) +1) / ln (1+r)
Growing annuity:
→ This calculates the maximum investment you should make for a project that provides
increasing cash flows over a limited time.
PVGA= C x ( 1 - (1+g/ 1+r) ^t / r -g )
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