Formula sheet

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Finance foundationsOpen the track

Future valueFV = PV x (1 + r)^n$100 at 8% for 3 years grows to $125.97.
Present valuePV = CF / (1 + r)^nThe same idea run backwards: $125.97 in 3 years at 8% is worth $100 today.
PerpetuityPV = CF / r$5 a year forever at 10% is worth $50.
Growing perpetuityPV = CF next year / (r - g)Only works when r is above g. The base of the Gordon growth terminal value.
AnnuityPV = CF x (1 - (1 + r)^-n) / rA fixed payment for n periods. $100 a year for 3 years at 10% is worth $248.69.
Rule of 72Years to double = 72 / rate in percentAt 8%, about 9 years. A quick check, not an exact answer.

AccountingOpen the track

The balance sheet identityAssets = Liabilities + Shareholders' equityEvery walk through the statements has to end with this still true.
Net incomeNet income = (Revenue - COGS - OpEx - D&A - Interest) x (1 - tax rate)A simplified income statement with one tax line.
Cash flow from operationsCFO = Net income + non-cash charges - increase in net working capitalD&A and stock-based comp are added back; an increase in working capital uses cash.
Net working capitalNWC = (Receivables + Inventory + Prepaids) - (Payables + Accrued expenses + Deferred revenue)Operating items only. Cash and debt are left out.
Depreciation up $10 at a 25% tax rateNet income -$7.50, cash +$2.50, PP&E -$10, equity -$7.50The canonical walk. Cash rises because of the tax saving.

Enterprise and equity valueOpen the track

Equity valueEquity value = Share price x Diluted shares outstandingDiluted shares use the treasury stock method for options.
Treasury stock methodNew shares = Options in the money - (Options x Strike / Share price)Assumes exercise proceeds buy back stock at today's price.
Enterprise valueEV = Equity value + Debt + Preferred + Noncontrolling interest - CashThe value of the operations to every capital provider.
Pairing multiplesEV / EBITDA, EV / Revenue; Price / EPS = Equity value / Net incomePair a value with the metric that belongs to the same providers of capital.

Valuation: comps and precedentsOpen the track

Implied share price from compsImplied price = (Multiple x Metric - Net debt) / Diluted sharesFrom EV to equity value to a price per share.
PEG ratioPEG = (P / E) / Expected EPS growth in percentA P/E of 20 with 10% growth gives a PEG of 2.0.
Offer premiumPremium = Offer price / Unaffected price - 1$30 offered for a $24 stock is a 25% premium.

DCFOpen the track

Unlevered free cash flowUFCF = EBIT x (1 - t) + D&A - Capex - Increase in NWCCash available to all capital providers before any interest.
Cost of equity (CAPM)Re = Rf + Beta x (Expected market return - Rf)4% risk-free, beta 1.2, 5.5% equity risk premium gives 10.6%.
WACCWACC = E / (D + E) x Re + D / (D + E) x Rd x (1 - t)Weights at market value. Debt is cheaper after tax because interest is deductible.
Terminal value, perpetuity growthTV = FCF final year x (1 + g) / (WACC - g)Valued as of the final forecast year, then discounted back with that year's factor.
Terminal value, exit multipleTV = Final year EBITDA x Exit EV / EBITDA multipleCross check it against the growth rate it implies.
Unlevering betaUnlevered beta = Levered beta / (1 + (1 - t) x D / E)Strip each comp's leverage, average, then relever at the target's structure.

Merger modelsOpen the track

Accretion or dilutionPro forma EPS = (Buyer NI + Target NI + after-tax synergies - after-tax cost of financing) / (Buyer shares + New shares)Accretive when pro forma EPS is above the buyer's standalone EPS.
The yield shortcutAll-stock deal is accretive when Target P / E < Buyer P / EMore generally, compare the target's earnings yield with the weighted after-tax cost of the currencies used.
GoodwillGoodwill = Equity purchase price - Fair value of net identifiable assetsWrite-ups to assets and the new deferred tax liability move net identifiable assets first.
Exchange ratioExchange ratio = Offer price per target share / Buyer share priceBuyer shares issued per target share in a stock deal.

LBOsOpen the track

MOICMOIC = Equity value at exit / Equity investedIgnores time. Pair it with IRR.
IRR with no interim cash flowsIRR = MOIC^(1 / years) - 12x in 5 years is about 14.9%. 3x in 5 years is about 24.6%.
Exit equityExit equity = Exit EBITDA x Exit multiple - Net debt at exitThe three drivers: EBITDA growth, multiple change, and debt paid down.
Leverage and coverageLeverage = Debt / EBITDA; Interest coverage = EBITDA / Interest expenseThe two numbers lenders read first.

Markets and productsOpen the track

Credit spreadSpread = Bond yield - Treasury yield of the same maturityA 6.5% yield over a 4.5% Treasury is a 200 basis point spread.
Basis points1 basis point = 0.01%100 basis points is one percentage point.
Price change from duration% price change = -Modified duration x Change in yieldDuration 7 and yields up 0.50% means a price fall of about 3.5%.

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Formula sheet

35
formulas: 0
of 35 cards reviewed

Drill them as flashcards

Finance foundationsOpen the track

Future valueFV = PV x (1 + r)^n$100 at 8% for 3 years grows to $125.97.
Present valuePV = CF / (1 + r)^nThe same idea run backwards: $125.97 in 3 years at 8% is worth $100 today.
PerpetuityPV = CF / r$5 a year forever at 10% is worth $50.
Growing perpetuityPV = CF next year / (r - g)Only works when r is above g. The base of the Gordon growth terminal value.
AnnuityPV = CF x (1 - (1 + r)^-n) / rA fixed payment for n periods. $100 a year for 3 years at 10% is worth $248.69.
Rule of 72Years to double = 72 / rate in percentAt 8%, about 9 years. A quick check, not an exact answer.

AccountingOpen the track

The balance sheet identityAssets = Liabilities + Shareholders' equityEvery walk through the statements has to end with this still true.
Net incomeNet income = (Revenue - COGS - OpEx - D&A - Interest) x (1 - tax rate)A simplified income statement with one tax line.
Cash flow from operationsCFO = Net income + non-cash charges - increase in net working capitalD&A and stock-based comp are added back; an increase in working capital uses cash.
Net working capitalNWC = (Receivables + Inventory + Prepaids) - (Payables + Accrued expenses + Deferred revenue)Operating items only. Cash and debt are left out.
Depreciation up $10 at a 25% tax rateNet income -$7.50, cash +$2.50, PP&E -$10, equity -$7.50The canonical walk. Cash rises because of the tax saving.

Enterprise and equity valueOpen the track

Equity valueEquity value = Share price x Diluted shares outstandingDiluted shares use the treasury stock method for options.
Treasury stock methodNew shares = Options in the money - (Options x Strike / Share price)Assumes exercise proceeds buy back stock at today's price.
Enterprise valueEV = Equity value + Debt + Preferred + Noncontrolling interest - CashThe value of the operations to every capital provider.
Pairing multiplesEV / EBITDA, EV / Revenue; Price / EPS = Equity value / Net incomePair a value with the metric that belongs to the same providers of capital.

Valuation: comps and precedentsOpen the track

Implied share price from compsImplied price = (Multiple x Metric - Net debt) / Diluted sharesFrom EV to equity value to a price per share.
PEG ratioPEG = (P / E) / Expected EPS growth in percentA P/E of 20 with 10% growth gives a PEG of 2.0.
Offer premiumPremium = Offer price / Unaffected price - 1$30 offered for a $24 stock is a 25% premium.

DCFOpen the track

Unlevered free cash flowUFCF = EBIT x (1 - t) + D&A - Capex - Increase in NWCCash available to all capital providers before any interest.
Cost of equity (CAPM)Re = Rf + Beta x (Expected market return - Rf)4% risk-free, beta 1.2, 5.5% equity risk premium gives 10.6%.
WACCWACC = E / (D + E) x Re + D / (D + E) x Rd x (1 - t)Weights at market value. Debt is cheaper after tax because interest is deductible.
Terminal value, perpetuity growthTV = FCF final year x (1 + g) / (WACC - g)Valued as of the final forecast year, then discounted back with that year's factor.
Terminal value, exit multipleTV = Final year EBITDA x Exit EV / EBITDA multipleCross check it against the growth rate it implies.
Unlevering betaUnlevered beta = Levered beta / (1 + (1 - t) x D / E)Strip each comp's leverage, average, then relever at the target's structure.

Merger modelsOpen the track

Accretion or dilutionPro forma EPS = (Buyer NI + Target NI + after-tax synergies - after-tax cost of financing) / (Buyer shares + New shares)Accretive when pro forma EPS is above the buyer's standalone EPS.
The yield shortcutAll-stock deal is accretive when Target P / E < Buyer P / EMore generally, compare the target's earnings yield with the weighted after-tax cost of the currencies used.
GoodwillGoodwill = Equity purchase price - Fair value of net identifiable assetsWrite-ups to assets and the new deferred tax liability move net identifiable assets first.
Exchange ratioExchange ratio = Offer price per target share / Buyer share priceBuyer shares issued per target share in a stock deal.

LBOsOpen the track

MOICMOIC = Equity value at exit / Equity investedIgnores time. Pair it with IRR.
IRR with no interim cash flowsIRR = MOIC^(1 / years) - 12x in 5 years is about 14.9%. 3x in 5 years is about 24.6%.
Exit equityExit equity = Exit EBITDA x Exit multiple - Net debt at exitThe three drivers: EBITDA growth, multiple change, and debt paid down.
Leverage and coverageLeverage = Debt / EBITDA; Interest coverage = EBITDA / Interest expenseThe two numbers lenders read first.

Markets and productsOpen the track

Credit spreadSpread = Bond yield - Treasury yield of the same maturityA 6.5% yield over a 4.5% Treasury is a 200 basis point spread.
Basis points1 basis point = 0.01%100 basis points is one percentage point.
Price change from duration% price change = -Modified duration x Change in yieldDuration 7 and yields up 0.50% means a price fall of about 3.5%.