Must know formulas

CFA Level II
#1

What formulas do you think you absolutely must know before June 7th? I’ll start with an easy one that I somehow mix up anyways: Justified P/E: (1- b)/(r - g); or (1-b)(1 +g)/(r - g) for trailing

#2

FCFE = NI - (1-DR)*(FC Inv - Depr) - (1-DR)*(WCInv) DR being target Debt Ratio

#3

This has the hallmark of a very depressing thread! How about: Equity index forward valuation: P0*e^(RFR(cc) - DivRet©)T (T is over365 days) edit: write the word forward

#4

Intrensic P/E = 1/r + [(1/r - 1/roe) X (g/r-g)]

#5

^^ I assume thats for a future?

#6

RI formula w/ persistence factor - I know it but too long to type here!

#7

EVA = NOPAT - WACC NOPAT = EBIT (1-T) to be adjusted if additional information provided WACC = WACC * Invested Capital (IC) IC = BV of LTD + BV of Equity = Net PP&E + Net WC and EVA spread = EVA / IC

#8

Assets = Liabilities + Equity

#9

FCFF = NI + NCC + Int(1-tax) - FCInv - WCInv FCFF = EBIT*(1-tax) + Dep - FCInv - WCInv FCFF = EBITDA *(1-tax) + Dep(Tax) - FCInv - WCInv FCFF = CFO + Int(1-tax) - FCInv FCFE = FCFF - Int(1-tax) + Net borrowing FCFE = NI + NCC - FCInv - WCInv + Net Borrowing FCFE = NI - [(FCInv - Dep)(1- DR)] - [WCInv*(1-DR)]

#10

How about some quant? - Mean reverting level Xt = b0 + b1 Xt solved as Xt = b0/(1-b1) - R2 = SSR / SST - Fstat = MSR / MSE - SEE = (MSE)^1/2

#11

This is the first page of my 10 page excel document of these “must know formulas” in no particular order. It gets much much messier after that page and won’t translate well to the forum. I hide the column with the answers and then fill them in once a day. $WACC=WACC * Invested Capital Invested Capital=NWC + Net PP&E =Long Term Debt + Stockholder’s Equity NOPAT/NOPLAT=EBIT * (1-T) EVA=NOPAT - WACC Justified P/B=(ROE - g) / (r - g) FCFF (EBIT)=EBIT \* (1-T) + dep - FCInv - WCInv FCFF (CFO)=CFO + Int\*(1-T) -FCInv FCFF (EBITDA)=EBITDA \* (1 - T) + dep(T) - FCInv - WCInv FCFF (NI)=NI + NCC + Int\*(1-T) - FCInv - WCInv FCFE=FCFF - Int (1- T) + Net Borrowing FCFE (CFO) = CFO + FCInv + Net Borrowing (includes both long and short term debt issue/repayments) EVA Spread=EVA / Invested Capital Also: ROC - WACC MVA (Market Value Added)=EVA / WACC Return on Capital (ROC)=NOPAT / (Invested Capital) Enterprise Value=Invested Capital + MVA Flow Effect In =Change in Exposure (LC) * (Ending Rate - Average Rate) Holding Effect In =Beginning Exposure (LC) \* (Ending Rate - Beginning Rate Translation Gain/Loss In =Flow Effect + Holding Effect Cumulative Translation Adjustment=Translation G/L on Balance Sheet under the All-Current Method Forward Price=FP = S(0) * (1 + Rf)^T After-Tax Operating Cash Flows=(S - C - D) * (1 - T) + D TNOCF=Sal(t) + NWCInv - T(Sal(t) - B(t)) Cash Flow Yield=CFO / NI Equity Charge=equity capital * cost of equity Residual Income Dividend=Earnings - CapX * (% of Equity Financing) Common Shareholder’s Equity = Assets - Liabilities - Preferred Stock Adjusted Cash Flow = CFO + [(net cash interest outflow) * (1 - T)] Equity Risk Premium (Gordon Growth Model)=Dividen Yield + Long Term Earnings Growth - Long Term Gov’t Bond Yield FCFE (target debt ratio)=NI - [(1 - DR) * (FCInv - dep)] - [(1 - DR) * WCInv]

#12

Dwight, I absolutely hate to start this in motion, cause you know lurkurs are going to jump out of the woodwork, but would you mind emailing it to me? q.benjamin@gmail.com Thanks!

#13

CF = NI + A + D Adjusted CFO = CFO + I*(1-t)

#14

$WACC=WACC * Invested Capital Invested Capital=NWC + Net PP&E =Long Term Debt + Stockholder’s Equity **** INVESTED CAPITAL MUST INCLUDE CURRENT PORTION OF LONG TERM DEBT****

#15

Re. FCFF and ebit, isn’t this eqaution? I could well be wrong - you may just ignore tax on interest. FCFF = EBIT*(1-tax) + I(t) + Dep - FCInv - WCInv Plus technically you should be accounting for (I wonder if that’s where the expression comes from !?) increase(decrease) in Deferred Tax Liability tionas a +ve addition (-ve addition) to FCF finance03 Wrote: ------------------------------------------------------- > FCFF = NI + NCC + Int(1-tax) - FCInv - WCInv > FCFF = EBIT*(1-tax) + Dep - FCInv - WCInv > FCFF = EBITDA *(1-tax) + Dep(Tax) - FCInv - WCInv > FCFF = CFO + Int(1-tax) - FCInv > > FCFE = FCFF - Int(1-tax) + Net borrowing > FCFE = NI + NCC - FCInv - WCInv + Net Borrowing > > FCFE = NI - [(FCInv - Dep)(1- DR)] -

#16

I don’t know if the S&P formulas are “must know”, but here they are: NI + D +/- Non cash items = funds from operation (FFO) FFO + decrease in noncash current assets + increase in nondebt current liabilities = Operating CFs (CFO) CFO - Capex = Free CFO Free CFO - Cash dividends = Discretionary CFs Discretionary CFs - Acquisitions + Asset disposals = Prefinancing CFs

#17

Probability of option to rise in value: (1 + r + UP) / (UP - DN)

#18

IRP = Call+ X/(1+r)T = Put + Stock CAL = E(Rc) = Rf + (E(Rt) – Rf)/SDt) COVi,j = BiBj(variance market) Variance I = Bi^2(varianceM) + variance(error) = systematic + unsystematic

#19

allépourpêcher Wrote: ------------------------------------------------------- > Re. FCFF and ebit, isn’t this eqaution? I could > well be wrong - you may just ignore tax on > interest. > > FCFF = EBIT*(1-tax) + I(t) + Dep - FCInv - WCInv Ummmm since EBIT is before interest, you do not need to add interest back.

#20

FCRP = (E(S1) - S1)/S1 - (Rdc - Rfc) with S1 quoted as DC/FC