Net Income

Net Sales
- COGS (Unit Sales X Cost per Unit)
= Gross Earnings
- Operating Costs
- Fixed Costs
= EBIT or Operating Profits
- Interest Expense
= Net Income

Net Cash Build/Burn = Cash Flow from Operations + Cash Flow from Investing

EBDAT = Revenue (R) – Variable Cost (VC) – Cash Fixed Cost (CFC)
𝐶𝐹𝐶
Survival Revenue (SR) = VC +CFS or SR = (1−𝑉𝐶𝑅𝑅) or SR = EBDAT

Contribution Profit Margin (CPM) = 1 – VCRR

Alternative:

VC = VCRR X R

CFC = SR – VC or CFC = SR – (VXRR X R) or CFC = SR X (1-VCRR)

NOPAT

NOPAT = EBIT X (1 – t)

EVA = NOPAT – After tax COC

Total Operating Fixed Cost (TOFC) = COFC + FC ***EXCLUDE INTEREST EXPENSE

𝑇𝑂𝐹𝐶
NOPAT Break Even (NR) = (1−𝑉𝐶𝑅𝑅)

Cash Burn / Cash Build

Cash Burn = Operating Expenses + Interest Expense + Tax Expense + Increase in Inventories – Changes in

Payables – Changes in Accrued Liabilities + Capital Expenditures

Cash Build = Net Sales – Increase in Receivables

Liquid Ratios
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝐴
Current Ratio = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝐿
 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝐴−𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
Quick Ratio = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝐿

NWC = CA – CL
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝐴−𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝐿
NWC Total Assets Ratio = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝐴

Leverage Ratios
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡𝑠
Debt Total Assets Ratio =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝐴

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝐴 1
Equity Multiplier = or
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐸𝑞𝑢𝑖𝑡𝑦 (1−𝐷𝑒𝑏𝑡 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 𝑅𝑎𝑡𝑖𝑜)

𝑇𝐴
Debt to Equity = (1−𝐷𝑒𝑐𝑡 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠 𝑅𝑎𝑡𝑖𝑜)

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐶𝐿
Current Liabilities to Total Debt = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝐷

𝐸𝐵𝐼𝑇𝐷𝐴
Interest Coverage =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡
𝐸𝐵𝐼𝑇𝐷𝐴+𝐿𝑒𝑎𝑠𝑒 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑠
Fixed Charge Coverage = 𝐷𝑒𝑏𝑡 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑠
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡+𝐿𝑒𝑎𝑠𝑒 𝑃𝑎𝑦𝑚𝑒𝑛𝑡𝑠+( )
1−𝑡

Profitability & Efficiency Ratios

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠−𝐶𝑂𝐺𝑆
Gross Profit Margin = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
𝐸𝐵𝐼𝑇
Operating Profit Margin = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒
Net Profit Margin = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

𝐸𝐵𝐼𝑇(1−𝑡)
NOPAT Margin = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠

Efficiency & Return Measures

𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
Sales to Assets Ratio or Assets Turnover = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝐴

𝐸𝐵𝐼𝑇
OROA = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝐴

𝑁𝐼
ROA = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑇𝐴 or Net Profit Margin X Sales to Assets Ratio

𝑁𝐼
ROE = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐸𝑞𝑢𝑖𝑡𝑦 or Net Profit Margin X Sales to Assets Ratio X Equity Multiplier
CCC (C3)
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑖𝑒𝑠
Inventory-to-sale conversion period = 𝐶𝑂𝐺𝑆/365

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒𝑠
Sale-to-cash conversion period = 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠/365

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑃𝑎𝑦𝑎𝑏𝑙𝑒𝑠+𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑟𝑢𝑒𝑑 𝐿𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑖𝑒𝑠

Purchase-to-payment conversion period = 𝐶𝑂𝐺𝑆/365

Put it together, C3 = Inventory-to-sale conversion period + Sale-to-cash conversion period –

Purchase-to-payment conversion period

Interest Rates

Risk Free Rate (rf) = RR + IP

Nominal Interest Rate (rd) = Real Interest Rate (RR) + Inflation Premium (IP) + Default Risk Premium

(DRP) + Marketability/Liquidity Premium (LP) + Maturity Premium (MP)

or

rd = rf + DRP + LP + MP

Investment
𝐶𝑎𝑠ℎ 𝐼𝑛𝑓𝑙𝑜𝑤+(𝑃1−𝑃0)
% Rate of Return (r) = 𝑋 100
𝑃0

E(r) = ∑Pb(r)

Variance (σ2) = Pb[r – E(r)]2

SD (σ) = √𝑉𝑎𝑟𝑖𝑎𝑛𝑐𝑒
𝑆𝐷
Coefficient of Variation = 𝐸(𝑟)

Cost of Equity Capital

Cost of Common Equity (re) = rf + Investment Risk Premium (IRP) or re = rf + β(rm – rf)

Rate of Return for Venture Investor (rv) = re + Advisory Premiuim (AP) + Liquidity Premium (LP) + Hubris

Projections Premium (HPP)

WACC

After-tax WACC = [(1 – tax rate) x (debt rate) x (debt –to–value)] + [Equity Rate x (1 – debt–to–value)]