Financial management project- balance sheet, I need an American accounting expert

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STUDENT EQUATIONS HANDBOOK This handbook was designed to be a quick reference guide to equations presented in the textbook. Note: Not all chapters use equations.

CHAPTER 2

2-1 Assets 5 Liabilities 1 Equity

2-2 Net working capital 5 Current assets 2 Current liabilities

2-3 Earnings per share (EPS) 5 Net income available to common stockholders

Total shares of common sttock outstanding

2-4 Dividends per share (DPS) 5 Common stock dividends paid

Number of shares of common stock outtstanding

2-5 Book value per share (BVPS) 5 Common stock + Paid - in surplus + Retained earnings

Number of sharres of common stock outstanding

2-6 Market value per share (MVPS) 5 Market price of the firm’s common stock

2-7 Average tax rate 5 Tax liability

Taxable income

2-8 FCF 5 [EBIT (1-Tax Rate) 1 Depreciation] 2 [∆Gross fixed assets 1 ∆Net operating working capital]

5 [NOPAT 1 Depreciation] 2 Investment in operating capital

5 Operating cash flow 2 Investment in operating capital

CHAPTER 3

3-1 Current ratio 5 Current assets

Current liabilities

3-2 Quick ratio (acid-test ratio) 5 Current assets - Inventory

Current liabilities

3-3 Cash ratio 5 Cash and marketable securities

Current liabilities

PF Blue + Charcoal

PF Blue + White

SP1385(1612)

3-4 Inventory turnover 5 Sales or cost of goods sold

Inventory

3-5 Days’ sales in inventory 5 Inventory x 365

Sales or cost of goods sold 365 days

Invento =

rry turnover

3-6 Accounts receivable turnover 5 Credit sales

Accounts receivable

3-7 Average collection period (ACP) 5 Accounts receivable x 365 days

Credit sales 365 days

Account =

ss receivable turnover

3-8 Accounts payable turnover 5 Cost of goods sold Accounts payable

3-9 Average payment period (APP) 5 Accounts payable × 365 days

Cost of goods sold 365 days

Acco =

uunts payable turnover

3-10 Fixed asset turnover 5 Sales

Net fixed assets

3-11 Sales to working capital 5 Sales

Working capital

3-12 Total asset turnover 5 Sales

Total assets

3-13 Capital intensity 5 Total assets

Sales

3-14 Debt ratio 5 Total debt

Total assets

3-15 Debt-to-equity 5 Total debt

Total equity

3-16 Equity multiplier 5 Total assets Total equity

or Total assets

Common stockholderss' equity

3-17 Times interest earned 5 EBIT

Interest

3-18 Fixed-charge coverage 5 Earnings available to meet fixed changes

Fixed charges

3-19 Cash coverage 5 EBIT + Depreciation

Fixed charges

3-20 Gross profit margin 5 Sales - Cost of gold sold

Sales

3-21 Operating profit margin 5 EBIT Sales

3-22 Profit margin 5 Net income available to common stockholders

Sales

3-23 Basic Earnings Power (BEP) 5 EBIT

Total assets

3-24 Return on assets (ROA) 5 Net income available to common shareholders

Total assets

3-25 Return on equity (ROE) 5 Net income available to common stockholders

Common stockholdders' equity

3-26 Dividend payout 5 Common stock dividends

Net income available to common stockhholders

3-27 Market-to-book ratio = Market price per share Book value per share

3-28 Price-earnings (PE) ratio 5 Market price per share

Earnings per share

3-29 ROA 5 Profit margin 3 Total asset turnover

3-30 ROE 5 ROA 3 Equity multiplier

3-31 ROE 5 Profit margin 3 Total asset turnover 3 Equity multiplier

Net income available to common stockholders

Common stockholdders' equity

Net income available to common stockholders

S =

aales Sales

Total assets Total assets

Common stockholders' e 3 3

qquity

3-32 Internal growth rate 5 ROA RR

1 ROA RR 3

2 3( )

3-33 Retention ratio (RR) 5 Addition to retained earnings

Net income available to commonn stockholders or 1- Dividend payout ratio

3-34 Sustainable growth rate 5 ROE × RR

1 ROE × RR2( )

CHAPTER 4

4-1 Future value in 1 year 5 FV1 5 PV 3 (1 1 i)

4-2 Future value in N years 5 FVN 5 PV 3 (1 1 i) N

4-3 Future value in N periods 5 FVN 5 PV 3 (1 1 iperiod 1 )3 (1 1 iperiod 2) × (1 1 iperiod 3) 3 . . . 3 (1 1 iperiod N)

Net income available to common stockholders

Total assests

eet income available to common stockholders

Sales Sales

Tota 3

ll assets

Net income available to common stockholders

Common stockholdders' equity ROA

Total assets Common stockholders' equity

= 3

4-4 Present value of next period’s cash flow 5 PV FV

i =

+( ) 1

4-5 Present value of cash flow made in N years 5 PV FV

i N

N =

+( )1

4-6 Present value with different discount rates 5 PV FV

i i i i N

= +( ) +( ) +( ) +(1 1 1 11 2 3period period period period3 3 3 3 ))

4-7 Approximate number of years to double an investment 5 72

Interest rate

CHAPTER 5

5-1 FVN 5 Future value of first cash flow 1 Future value of second cash flow 1 …. 1 Future value of last cash flow 5 PMTm 3 (1 1 i)

N-m + PMTn 3 (1 + i) N-n 1 …. 1 PMTp 3 (1 1 i)

N-p

5-2 FVA PMT i iN N

= +( )

3 21 1

5-3 PV 5 Present value of first cash flow + Present value of second cash flow 1 …. 1 Present value of last cash

flow 5 PMT

PMT

i m m

n n

p p

1 1 1+( ) +

+( ) + +

+( ) 

5-4

5-5 PV of a perpetuity 5 PMT

5-6 FVAN due 5 FVAN 3 (1 1 i)

5-7 PVAN due 5 PVAN 3 (1 1 i)

5-8

5-9

CHAPTER 6

6-1 IP = CPI CPI

CPI t + 1 t

2 3100

6-2 i 5 Expected IP + RFR

6-3 RFR 5 i – Expected IP

6-4 DRPj 5 ijt – iTt

6-5 i*j 5 f(IP, RFR, DRPj, LRPj, SCPj, MPj)

6-6 (1 1 1RN) N 5 (1 1 1R1)[1 + E(2r1)]….[ 1 1 E(Nr1)]

6-7 1RN 5 {[1 1 1R1][1 + E(2r1)]….[ 1 1 E(Nr1)]} 1/N -1

6-8 1RN 5 {[1 1 1R1][1 + E(2r1) 1 L2]….[ 1 + E(Nr1) 1 LN]} 1/N -1

6-9 1R2 5 [(1 1 1R1)(1 + 2f1)] 1/2 -1

6-10 2f1 5 [(1 1 1R2) 2 / (1 + 1R1)] -1

6-11 Nf1 5 [(1 1 1RN) N / (1 1 1RN-1)

N-1] -1

CHAPTER 7

7-1 Present value of a bond 5

7-2 Bond price 5 PV of annuity (PMT, i, N) + PV (FV, i, N)

7-3 Price of a callable bond 5

7-4 Equivalent taxable yield 5 Muni yield

Tax rate12

CHAPTER 8

8-1 P D P

i0 1 1

1 =

8-2 P

D i

D P

i 0

1 2 2 21 1

= +

+ +

+( )

8-3 P D

i D

D P

i n n

n0 1 2

21 1 1 =

+ +

+( ) + +

+( ) 

8-4 P D

i D

i 0

1 2 2

3 31 1 1

= +

+ +( )

+

8-5 P D g

i P

D g

i P

D g

i 0

0 0

0 2

2 0 0

1 1

1 =

+( ) +

+ = +( ) +( )

+

8-6 Constant growth model 5 P D g

i g D

i g0 0 11=

+( ) =

2 2

8-7 Expected return 5 i D P

g= + =1 0

Dividend yield + Capital gain

8-8 P D g

i P

D g

i P

D g

0 0 1

2 0 0 1

01 1

1 =

+( ) + =

+( ) ( )

+ = +( )

( ) + +

2 2 2 

++( ) + +( ) +( )

( )

g D g g

i g

n n

1 0 1 2

1 1

8-9 P E/ = Current stock price

Per share earnings for the last 12 2 mmonths

8-10 P P E En n n= ( )/ 3

5 P E E g n

n /( ) +( )3 30 1

CHAPTER 9

9-1 Dollar return 5 (Capital gain or loss) 1 Income

5 (Ending value – Beginning value) 1 Income

9-2 Percentage return 5 Ending value Beginning value + Income

Beginning value 2

3100%

9-3 Average return 5

9-4 Geometric mean return 5

9-5 Standard deviation 5

9-6 Coefficient of variation 5 Amount of risk

Return =

Standard deviation Average return

9-7 Total risk 5 Firm-specific risk + Market risk

9-8 Rp 5 (Proportion of portfolio in first stock 3 That stock’s return) 1

(Second stock portion 3 Second stock return) 1 . . . 5

CHAPTER 10

10-1 Expected return 5

10-2 Standard deviation 5 p p1 1

2 2

Return Expected return

Return Expected

( ) +

return( ) + 2



10-3 Required return 5 Risk-free rate 1 Risk premium

10-4 Expected return 5 Rf 1 β(Rm – Rf)

10-5

10-6 i 5 Dividend yield 1 Constant growth = D P

g1 0 +

CHAPTER 11

11-1 E

E P D i

P E P D

i D

E P D i TE P D C

+ + +

+ + ( )3 21

11-2 iE 5 Rf 1 β(RM – Rf)

11-3 i D P

gE = + 1

11-4 i D PP

= 1

11-5

11-6 iE 5 rf 1 βAvg [E(rM) – rf]

Where

11-7 WACC E

E P D iProject

= + +

Project

Project Project Project E, Project

+ P

E P D iProject

Project Project Project+ + PP, Firm

Project

Project Project +

D E P D+ + PProject

D, Firm Projecti Tc3 21 ,( )

11-8 i D

P F gE = +

0 2

11-9 i D

P FP = 1

0 2

11-10

CHAPTER 12

12-1 FCF 5 Operating cash flow – Investment in operating capital

5 [EBIT (1 – Tax rate) 1 Depreciation]

– [∆Gross fixed assets 1 ∆Net operating working capital]

12-2 Depreciation 5 Depreciation = Depreciable basis Ending book value

Life of as 2

sset

( ) ( ) ( ) ( )3 3 3 3 1 1 2 2 3 3 1

p n n j j j

w w w w w =

= + + + + = ∑     

12-3 ATCF 5 Book value 1 (Market value – Book value) 3 (1 – TC)

12-4

12-5

CHAPTER 13

13-1 Payback Statistic

13-2 Payback Decision Rule

Accept project if calculated payback ≤ Maximum allowable payback

Reject project if calculated payback > Maximum allowable payback

13-3 Discounted Payback Statistic

13-4 Discounted Payback Decision Rule

Accept project if calculated DPB ≤ Maximum allowable discounted payback

Reject project if calculated DPB > Maximum allowable discounted payback

13-5 NPV Statistic

13-6 NPV Decision Rule

Accept project if NPV ≥ 0

Reject project if NPV < 0

13-7 Formula Comparison (13-5 to 13-8)

Solve for NPV Solve for IRR

versus

13-8 IRR Statistic Solve for IRR:

13-9 IRR Decision Rule

Accept project if IRR ≥ Cost of capital

Reject project if IRR < Cost of capital

13-10 PI NPV CF

CF =

+ 0

13-11 Probability Index Decision Rule

Accept project if PI ≥ 1

Reject project if PI < 1

CHAPTER 14

14-1 Operating cycle 5 Days’ sale in inventory 1 Average collection period

5 Inventory 365

Cost of goods sold Accounts receivable 363 3

+ 55

Credit Sales

14-2 Cash cycle 5 Operating cycle – Average payment period

5 Operating cycle Accounts payable 365

Cost of goods sold 2

14-3 Opportunity cost 5 C

i 2

14-4 Trading cost 5 T C

X F

14-5 Total cost 5 C

i T C

F 2

X + X

14-6 C TF i

* = 2

14-7 Z F i

L day

* = + 3 4

2 3



14-8 H Z L* *= 3 22

CHAPTER 15

15-1 E(Salest + j) 5 Salest for all j > 0

15-2

15-3

15-4 AFN 5 Necessary increase in assets

– Spontaneous increase in liabilities

– Projected increase in retained earnings

15-5 Necessary increase in assets 5

15-6 Spontaneous increase in liabilities 5

15-7 Projected increase in retained earnings 5 M 3 S1 3 RR

CHAPTER 16

16-1 Proposition I (perfect world): VL 5 VU

16-2 Proposition II (perfect world): i i D E

i iE E E D= + ( ), ,0 0 2

16-3 Proposition IIa (perfect world): WACC i E

E D i

D E D

iE E D= = +

+ +

16-4 Proposition I (with corporate taxes): VL 5 VU 1 DTC

16-5 Proposition II (with corporate taxes): i i D E

i i TE E D C= + ( ) ( ),0 1E,0 2 3 2

16-6 Proposition IIa (with corporate taxes): WACC E

E D i

D E D

i TE D C= +

+ +

( )12

16-7 Proposition I (with corporate taxes and bankruptcy):

VL 5 VU 1 DTC – PV (costs of financial distress)

CHAPTER 17

17-1 P D

i g0 1=

17-2 Dividend payout ratio 5 Dividends Net income

17-3 Dividends 5 Net income – Retained earnings necessary to fund positive NPV

17-4 P D i0

17-5

17-6

17-7 i idaily daily= +1 1365 2

CHAPTER 19

19-1 Foward exchange rate Spot exchange rate

i i d

f 1

1 1 +

19-2 Pd 5 Pf 3 Spot rate

19-3 Expected exchange 5 Current spot rate

(domestic amount per unit of (domestic amount per foreign currency) unit of foreign currency)

3 (1 1 Domestic inflation rate – Foreign inflation rate)

CHAPTER 20

20-1 AC TC Si

i =

20-2 ACA 1 B[×1, ×2] < ACA[X1, 0] 1 ACB[0, X2]

20-3 ACFS < TAC

20-4 Z 5 1.2X1 1 1.4X2 1 3.3X3 1 0.6X4 1 1.0X5

20-5 PD Xi j n

j ij= +=∑ 1 Error