Summary Corporate Finance: all formulas + explanations

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 )