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Equity
Formulas
30
Finance
Professional
01/26/2013

Additional Finance Flashcards

 


 

Cards

Term
Calculating a Margin Call
Definition

P0 * [(1-Initial Margin) / (1-Maintenance Margin)]

 

Gives price at which an investor who goes long on a stock recieves a margin call

Term
Value of a Price Return Index
Definition

VPRI = ΣniPi / D

 

VPRI = Value of the price return index

ni = Number of units of constituent security i held in the index portfolio

Pi = Unit price of constituent security i

D = Value of the divisor

Term
Price Return of an Index
Definition

PRI = [VPRI1-VPRI0] / VPRI0

 

PRI = Price return of the index portfolio (as a decimal)

VPRI1= Value of the price return index at the end of the period

VPRI0 = Value of the price return index at the beginning of the period

 

 

Term
Price Return of Each Constituent Security of an Index
Definition

PR= [Pi1-Pi0] / Pi0 

 

where:

PRi = Price return of constituent security i (as a decimal number)

Pi1 = Price of the constituent security i at the end of the period

Pi0 = Price of the constituent security i at the beginning of the period

 

 

Term
Price Return of the Index is calculated as:
Definition

Weighted average price return of the constituent securities:

PRI = w1PR1 + w2PR2 + ....+ wNPRN

 

where:

PRI = Price return of the index portfolio (as a decimal number)

PRi = Price return of constituent security i (as a decimal number)

wi = Weight of security i in the index portfolio

N = Number of securities in the index

Term
Total Return of an Index
Definition

TRI = [VPRI1-VPRI0+IncI] / VPRI0

 

where:

TRI = Total return of the index portfolio (as a decimal number)

VPRI1 = Value of the total return index at the end of the period

VPRI0 = Value of the total return index at the beginning of the period

IncI = Total income from all securities in the index held over the period

 

 

 

Term
Total Return of Each Constituent Security of an Index
Definition

TR= [P1i-P0i+Inci] / P0i

 

where:

TRi = Total return of constituent security i (as a decimal number)

P1i = Price of constituent security i at the end of the period

P0i = Price of constituent security i at the beginning of the period

Inci = Total income from security i over the period

Term
Total Return of the Index is Calculated as: (Total Return formula)
Definition

TRI = w1TR1 + w2TR2 +....+ wNTRN

 

where:

TRI = Total return of the index portfolio (as a decimal number)

TRi = Total return of constituent security i (as a decimal number)

wi = Weight of security i in the index portfolio

N = Number of securities in the index

Term
Calculation of Index Returns Over Multiple Time Periods
Definition

VPRIT= VPRI0(1+PRI1)(1+PRI2) ... (1+PRIT)

 

where:

VPRI0 = Value of the price return index at inception

VPRIT = Value of the price return index at time t

PRIT = Price return (as a decimal number) on the index over the period

 

Can be valued the same way using values of a Total Return Index

Term
Price Weighting
Definition
wiP = Pi / ΣPi
Term
Equal Weighting
Definition

wiE = 1 / N

 

where:

wi = Fraction of the portfolio that is allocated to security i or weight of security i

N = Number of securities in the index

Term
Market Cap Weighting
Definition

wiM = QiPi / ΣQjPj

 

where:

wi = Fraction of the portfolio that is allocated to security i or weight of security i

Qi = Number of shares outstanding of security i

Pi = Share price of security i

N = Number of securities in the index

Term
Float-Adjusted Market-Cap Weight of Each Constituent Security:
Definition

wiM = fiQiPi / ΣfjQjPj

 

where:

fi = Fraction of shares outstanding in the market float

wi = Fraction of the portfolio that is allocated to security i or weight of security i

Qi = Number of shares outstanding of security i

Pi = Share price of security i

N = Number of securities in the index

Term
Fundamental Weighting
Definition

wiF = Fi / ΣFj

 

where:

Fi = A given fundamental size measure of company i

Term
Return Characteristics of Equity Securities
Definition

Total Return, Rt = (Pt–Pt-1+Dt) / Pt-1

 

where:

Pt-1 = Purchase price at time t – 1

Pt = Selling price at time t

Dt = Dividends paid by the company during the period

Term
Accounting Return on Equity
Definition

ROEt = NIt / Average BVEt = NIt / [(BVEt+BVEt-1) / 2]

 

Net Income / Avg Book value of equity

Term
Dividend Discount Model
Definition
Value = ΣDt / (1+ke)t
Term
Dividend Discount Model One Year Holding Period
Definition
[Dividend to be recieved + year-end price] / (1 +ke)1
Term
Multiple-Year Holding Period DDM
Definition
v = [D1 / (1+ke)1] + [D2 / (1+ke)2] + ... + [Pn / (1+ke)n]
Term
Infinite Period DDM
Definition
PV = D1 / [ke-gc]
Term
Long-term constant growth rate
Definition

gc = RR * ROE

 

**What's RR?? Retention Rate?

Term
Multi-Stage Dividend Discount Model
Definition

Value = [D1 / (1+ke)1] + [D2 / (1+ke)2] +...+ [Dn / (1+ke)n] + [Pn / (1+ke)n]

 

Where:

Pn = D(n+1) / [ke-gc]

Dn = Last dividend of the supernormal growth period

Dn+1 = First dividend of the constant growth period

Term
Free Cash Flow to Equity Model
Definition

V0 = ΣFCFEt / (1+ke)t

 

FCFE = CFO - FC Inv + Net Borrowing

 

Intrinsic value of the company's stock by discounting projections of FCFE at the required rate of return on equity

Term
Value of a Preferred Stock
Definition

Non-callable, non-convertible, no maturity date, and pays fixed dividends:

V0 = D0 / r

 

Non-callable, non-convertible, preferred stock with maturity at time n:

V0 = ΣDt / (1+r)t + [F / (1+r)n]

where:

V0 = value of preferred stock today (t = 0)

D= expected dividend in year t, assumed to be paid at the end of the year

r = required rate of return on the stock

F = par value of preferred stock

Term
Price to Cash Flow Ratio
Definition
Market Price of Share / Cash Flow per Share
Term
Price to Sales Ratio
Definition

Market Price per Share / Net Sales per Share

 

or:

 

Market value of equity / Total Net Sales

Term
Price to Book Value
Definition

Current Market Price of Share / Book Value per Share

 

Market Value of Common Shareholders' Equity / Book Value of Common Shareholders' Equity

 

where:

Book value of common shareholders’ equity = (Total assets - Total liabilities) - Preferred stock

Term
Price Multiples
Definition

Price to CF

Price to Sales

Price to Book

Term
Enterprise Value Multiples
Definition
EV / EBITDA
Term
EV / EBITDA
Definition

EV = Enterprise value:

 

MV of common stock

+ MV of outstanding preferred stock

+ MV of Debt

- Cash and cash equivalents

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