Quantitative Analysis
- Expected Value = Sum(Probability of Each Possible Outcome * Its Result)
- Net Present Value = (Future Income) * (1 + Discount Rate)^-Time Horizon
- Discount Rate: Do not use the company’s borrowing interest rate from banks; it should depend on project risk
- Discount Factor = Net Present Value / Future Cash
- Internal Rate of Return = The discount rate at which Net Present Value equals 0
- Finding probability via the normal distribution table: Standard Deviation Z from the mean = (A point on the normal distribution curve – Mean) / Standard Deviation
- Linear equation of a line: Dependent Variable = Slope of the line * Independent Variable + Intercept on the Y-axis
- R-squared value: The percentage of data variation explained by the known regression equation
- T-statistic: Whether the X variable has a statistically significant effect on the Y function
Stock Analysis
- Dividend Growth Model: Value per share = Annual dividend per share / (Discount rate or Expected Return Rate – Annual Dividend Growth Rate)
- Price-to-Earnings Ratio = Stock Price / Earnings Per Share
- Price-to-Book Ratio = Stock Price Per Share / Book Value of Assets Per Share
- Price-to-Sales Ratio = Total Sales / Stock Price
- Asset Value Per Share = Company Asset Value / Total Number of Shares Issued
- Cash Flow Per Share Ratio = Cash Flow / Total Number of Shares Issued
- Profitability Index = Net Present Value of Future Cash Flows / Initial Investment
Finance
- Capital Asset Pricing Model: Expected Return Rate = Risk-Free Return Rate + (Market Average Return Rate – Risk-Free Return Rate) * Beta (Systematic Risk Adjustment)
- Value of a Perpetual Bond = Infinite Bond Benefits Received / Expected Return Rate
- After-Tax Cost of Debt = Interest Rate on Borrowing * (1 – Tax Rate)
- Weighted Average Cost of Capital = After-Tax Cost of Debt * (Market Value of Debt / Sum of Debt and Equity) + Expected Return Rate * (Market Value of Equity / Sum of Debt and Equity)
- Dividend Yield = Annual Dividend / Market Price of Stock Per Share
- Dividend Payout Ratio = Annual Dividend / Net Income
- Terminal Value = Final Cash Flow / (Weighted Average Cost of Capital – Growth Rate)
- Enterprise Value = Present Value + Terminal Value – Debt
