Corporate Finance Formulas

Working Capital and Liquidity

Cash Conversion Cycle: $C C C = D O H + D S O - D P O$

Days of Inventory on Hand: $D O H = \frac{Inventory}{COGS /365}$

Days Sales Outstanding: $D S O = \frac{Accounts receivable}{Revenue /365}$

Days Payable Outstanding: $D P O = \frac{Accounts payable}{COGS /365}$

Current Ratio: $Current ratio = \frac{Current assets}{Current liabilities}$

Quick Ratio: $Quick ratio = \frac{Cash + Short-term marketable securities + Receivables}{Current liabilities}$

Net Present Value (NPV): $N P V = \sum_{t = 0}^{n} \frac{C F _{t}}{( 1 + r ) ^{t}}$

where $C F_{0}$ = initial outlay (negative), $C F_{t}$ = after-tax cash flow, $r$ = required rate of return

Internal Rate of Return (IRR): $0 = \sum_{t = 0}^{n} \frac{C F _{t}}{( 1 + I R R ) ^{t}}$

Return on Invested Capital (ROIC): $R O I C = \frac{After-tax operating profit}{Average book value of invested capital}$

Break-even (units): $Break-even = \frac{Fixed costs}{Contribution margin per unit}$

Weighted Average Cost of Capital (WACC): $W A C C = w_{d} \times r_{d} \times (1 - t) + w_{e} \times r_{e} + w_{p} \times r_{p}$

After-tax cost of debt: $r_{d} (1 - t)$

CAPM (Cost of equity): $r_{e} = R_{F} + β_{i} [E (R_{M}) - R_{F}]$

Bond Yield Plus Risk Premium (BYPRP): $r_{e} = r_{d} + Risk premium$

Modigliani-Miller with taxes: $V_{L} = V_{U} + t \times D$

MM Proposition II (with taxes): $r_{e} = r_{0} + (r_{0} - r_{d}) (1 - t) \times \frac{D}{E}$

$R O E = \frac{Net Income}{Total Equity}$

Debt amplifies ROE variance: higher upside when ROA > cost of debt, larger downside when ROA < cost of debt.