Term
Future Value of a Single Cash Flow |
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Definition
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Term
Present Value of a Single Cash Flow |
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Definition
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Term
Present Value of a Perpetuity |
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Definition
PV(perpetuity) = PMT / (I/Y) |
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Term
Present Value of an Annuity Due |
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Definition
PV (Annuity Due) = PV (ordinary annuity) * (1+r) |
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Term
Future Value of an Annuity Due |
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Definition
FV (Annuity Due) = FV (Ordinary Annuity) * (1+r) |
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Term
Future Value with continuous compounding |
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Definition
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Term
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Definition
EAR = (1+Periodic interest rate)N - 1 |
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Term
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Definition
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Term
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Definition
rBD = [D/F] * [360/t]
rBD = annualized yield on a bank discount basis
D = dollar discount (face value - purchase price)
F = face value of the bill
t = number of days until maturity |
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Term
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Definition
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Term
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Definition
EAY = [(1+HPY)365/t] - 1
HPY = holding period yield
t = number of days until maturity |
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Term
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Definition
Rmm = [360*rBD] / [360-(t*rBD)]
Rmm = HPY*(360/t) |
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Term
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Definition
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Term
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Definition
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Term
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Definition
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Term
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Definition
Rg = [[(1+r1) * (1+r2) ... (1+rt)](1/t)] - 1 |
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Term
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Definition
X = Number of observations / Σ(1/xi)
*Find what this measures/when it's used |
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Term
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Definition
Ly = [(n+1)*y] / 100
y = percentage point at which we are dividing the distribution
Ly = location (L) of the percentile (Py) in the data set sorted in ascending order |
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Term
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Definition
Range = Maximum value - Minimum value |
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Term
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Definition
MAD = Σ|xi-X| / n
n = number of items in the data set
X = mean
| | = absolute value
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Term
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Definition
σ2 = Σ(xi-μ)2 / N
Variances = observation - population mean |
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Term
Population Standard Deviation |
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Definition
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Term
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Definition
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Term
Sample Standard Deviation |
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Definition
s = [Σ(xi-X)2 / (n-1)]1/2 |
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Term
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Definition
s/X
Sample standard deviation / sample mean |
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Term
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Definition
[rp-rf] / sp
(mean portfolio return - risk free return) / standard deviation of portfolio returns |
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Term
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Definition
sk = [n / [(n-1)(n-2)]] * [Σ(xi-X)3 / s3]
As n becomes large, the first term reduces to 1/2 |
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Term
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Definition
[ [ [n*(n+1)] / [(n-1)(n-2)(n-3)] ] * [(Σ(xi-X)4 / s4] ] - [ [3(n-1)2] / [(n-2)(n-3)] ]
As n becomes large, the first term becomes 1/n and the third term becomes 3 |
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Term
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Definition
P(E) = a / (a+b)
Odds of "a" to "b"; switch numerator to b for probability of "b" to "a" |
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Term
Conditional Probabilities |
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Definition
P(A|B) = P(AB) / P(B)
Probability of A given B is the probability of A and B over Probability of B |
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Term
Multiplication Rule for Probability |
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Definition
P(AB) = P(A|B) * P(B)
Probability of A and B is the probability of A given B times the probability of B |
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Term
Addition rule for Probabilities |
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Definition
P(A or B) = P(A) + P(B) - P(AB) |
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Term
Probability for Independent Events |
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Definition
P(A|B) = P(A)
P(A or B) = P(A) + P(B) - P(AB)
P(A and B) = P(A) * P(B) |
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Term
The Total Probability Rule* |
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Definition
P(A) = P(AS) + P(ASc)
*Don't know what this is at all |
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Term
Total Probability Rule for n possible scenarios |
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Definition
P(A) = P(A|S1) * P(S1) + P(A|S2) * P(S2) + ...+ P(A|Sn) * P(Sn)
Where set of events s is mutually exclusive and exhaustive |
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Term
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Definition
E(X) = Σ P(xi)*xi
xi = one of n possible outcomes |
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Term
Variance and Standard deviation (expected returns) |
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Definition
σ2(x) = Σ P(xi)*[(xi - E(X))2] |
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Term
Total Probability Rule for Expected Value |
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Definition
1. E(X) = E(X|S)P(S) + E(X|Sc)P(Sc)
2. E(X) = E(X|S1) * P(S1) + E(X|S2) * P(S2) + ...+ E(X|Sn) * P(Sn)
Where: E(X) = the unconditional expected value of X
E(X|S1) = the expected value of X given Scenario 1
P(S1) = the probability of Scenario 1 occurring
The set of events {S1, S2,..., Sn} is mutually exclusive and exhaustive. |
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Term
Covariance (expected value) |
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Definition
Cov (XY) = E{[X - E(X)][Y - E(Y)]}
Cov (RA,RB) = E{[RA - E(RA)][RB - E(RB)]} |
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Term
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Definition
Corr (RA,RB) = Cov (RA,RB) / [(σA)(σB)]
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Term
Expected Return on a Portfolio |
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Definition
Sum of weight * expected return |
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Term
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Definition
Var(Rp) = Sum of (wi'*wj*Cov(Ri,Rj)) |
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Term
Variance of a 2 asset portfolio |
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Definition
Var(Rp) = [w2a*σ2*(Ra)] + [w2b*σ2*(Rb)] + [2wa*wb*Cov(Ra,Rb)] |
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Term
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Definition
P(Event|Information) = [P(Information|Event) * P(Event)] / P(Information) |
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Term
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Definition
The number of different ways that the k tasks can be done = n1*n2*...*nk |
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Term
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Definition
nCr = (n over r) = n! / [(n-r)!*(r!)]
Used when the order in which the items assigned the labels is not important |
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Term
Variance of a 3 asset portfolio |
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Definition
Var(Rp) = [w2a*σ2*(Ra)] + [w2b*σ2*(Rb)] + [w2c*σ2*(Rc)] + [2*wa*wb*Cov(Ra,Rb)] + [2*wb*wc*Cov(Rb,Rc)] + [2*wc*wa*Cov(Rc,Ra)] |
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Term
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Definition
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Term
Discrete uniform distribution |
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Definition
F(x) = n * p(x)
For the nth observation |
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Term
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Definition
P(X=x) = nCx*(p)x*(1-p)n-x
p = probability of success
1-p = probability of failure
nCx = number of possible combinations of having x successes in n trials. Aka number of ways to choose x from n when the order does not matter |
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Term
Variance of a binomial random variable |
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Definition
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Term
The Continuous Uniform Distribution` |
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Definition
P(X b) = 0 P (x1 < X < x2) = (x2 - x1) / (b - a) |
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Term
Confidence intervals (amounts) |
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Definition
90% - x ± 1.65s
95% - x ± 1.96s
99% - x ± 2.58s
Mean ± ... |
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Term
Probability statements that can be made about normal distributions |
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Definition
Approximately 50% of all observations lie in the interval mean ± (2/3)σ
Approximately 68% of all observations lie in the interval mean ± 1σ
Approximately 95% of all observations lie in the interval mean ± 2σ
Approximately 99% of all observations lie in the interval mean ± 3σ |
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Term
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Definition
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Term
Roy's safety-first criterion |
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Definition
Minimize P(RpT)
Where:
Rp = portfolio return
RT = target return |
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Term
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Definition
(E(Rp)-Rt) / σp
E(Rp) = expected portfolio return
Rt = target return |
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Term
Continuously compounded returns |
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Definition
EAR = ercc - 1
Where:
rcc = continuously compounded annual rate
HPRt = e(rcc*t) - 1 |
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Term
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Definition
Sampling error of the mean = Sample mean - Population mean
= X - μ |
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Term
Standard error (when population variance is known) |
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Definition
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Term
Standard error when population variance is not known |
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Definition
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Term
Confidence intervals (computation) |
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Definition
Sample mean ± (reliability factor * standord error)
Reliability factor = The standard normal random variable for which the probability of an observation lying in either tail is α / 2 |
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Term
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Definition
(Sample statistic-hypothesized value) / standard error of sample statistic |
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Term
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Definition
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Term
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Definition
Reject hypothesis that is true |
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Term
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Definition
Do not reject hpothesis even though it is false |
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Term
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Definition
[(X-μ0)] / [(s / n1/2)]
X = sample mean
μ0 = hypothesized population mean
s = standard deviation of the sample
n = sample size |
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Term
Setting Price Targets with Head and Shoulders Patterns |
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Definition
Price target = Neckline - (Head-Neckline) |
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Term
Setting Price Targets for Inverse Head and Shoulders Patterns |
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Definition
Price target = Neckline + (Neckline-Head) |
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Term
Momentum or Rate of Change Oxcillator |
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Definition
M = (V-Vx) * 100
M = momentum oscillator value
V = last closing price
Vx = closing price x days ago (typically 10) |
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Term
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Definition
RSI = 100 - [100 / (1+RS)]
RS = sum of up changes for the period / sum of absolute value of down changes for the period |
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Term
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Definition
%k = 100*[(C-L14)/(H14-L14)]
C = last closing price
L14 = lowest price in last 14 days
H14 = highest price in last 14 days
%D (signal line) = Average of the last three %K values calculated daily |
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Term
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Definition
Short Interest Ratio = Short Interest / Average daily trading volume |
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Term
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Definition
Arms Index = [Number of advancing/number of declining issues] / [Volume of advancing/volume of declining issues] |
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Term
Own-Price Elasticity of Demand |
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Definition
% Change in Demand / % Change in price |
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Term
How is "Percent Change" calculated when dealing with Elasticity? |
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Definition
Change in value / Average value
[Ending value-beginning value] / [(ending value+beginning value) / 2] |
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Term
Slope of the Demand Function |
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Definition
Change in Demand / Change in Price
**Not percent |
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Term
Income Elasticity of Demand |
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Definition
% Change in quantity demanded / % change in income |
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Term
Cross-Price Elasticity of Demand |
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Definition
% Change in demand / % Change in price of substitute or complement |
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Term
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Definition
Total Revenue - Total Accounting Costs |
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Term
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Definition
Total Revenue - Total Economic Costs
Total Economic Costs aka explicit + implicit cost |
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Term
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Definition
Accounting Profit - Economic Profit |
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Term
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Definition
Price times quantity or the sum of individual units sold times their respective prices |
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Term
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Definition
Total Revenue divided by quantity |
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Term
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Definition
Change in total revenue divided by change in quantity |
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Term
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Definition
Sum of all fixed expenses; includes all opportunity costs |
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Term
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Definition
Sum of all variable expenses, or per unit variable cost times quantity |
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Term
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Definition
Total fixed cost plus total variable cost |
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Term
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Definition
Total fixed cost divided by quantity |
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Term
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Definition
Total variable cost divided by quantity |
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Term
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Definition
Total cost divided by quantity |
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Term
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Definition
Change in total cost divided by change in quantity |
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Term
Marginal Revenue Product of labor |
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Definition
MRP of labor = change in total revenue / change in quantity of labor
Marginal product * Product price (when a firm's in perfect competition) |
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Term
Profit maximization with MRP |
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Definition
Profits are maximized when:
(MRP1 / Price of input 1) = (MRPn / Price of input n) |
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Term
Relationship between MR and price elasticity |
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Definition
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Term
N-firm concentration ratio |
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Definition
Computes the aggregate market share of the N largest firms in the industry.
Ratio will equal 0 for perfect competition and 100 for a monopoly |
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Term
Herfindahl-Hirschman Index |
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Definition
Adds up the squares of the market shares of each of the largest N companies in the market.
Equals 1 for a monopoly. |
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Term
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Definition
Value of goods and services included in GDP measured at current prices
Nominal GDP = quantity produced in Year t * Prices in Year t |
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Term
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Definition
Refers to the value of goods included in GDP measured at base-year prices
Real GDP = Quantity produced in Year t * Base-year prices |
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Term
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Definition
[Value of current year output at current year prices / value of current year output at base year prices] * 100
[Nominal GDP / Real GDP] * 100 |
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Term
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Definition
GDP = C + I + G + (X - M)
C = consumer spending on final goods and services
I = gross private domestic investment, which includes business investment in capital goods and changes in inventory
G = government spending on final goods and services
X = exports
M = imports |
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Term
Expenditure Approach of GDP Calculation |
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Definition
GDP = consumer spending on goods and services
+ Business gross fixed investment
+ Change in inventories
+ Government spending on goods and services
+ Government gross fixed investment
+ Exports - imports
+ Statistical discrepancy |
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Term
Income Approach of GDP Calculation |
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Definition
National income + Capital consumption allowance + Statistical discrepancy |
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Term
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Definition
Sum of incomes received by all factors of production used to generate final output
Employee compensation, corporate and government enterprise profits before taxes, interest income, rent and unincorporated business net income, indirect business taxes less subsidies |
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Term
Capital consumption allowance |
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Definition
Accounts for the wear and tear or depreciation that occurs in capital stock during the production process.
Represents the amount that must be reinvested by the company in the business to maintain current productivity levels |
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Term
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Definition
National Income - Indirect business taxes - corporate income taxes - undistributed corporate profits + transfer payments |
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Term
Personal disposable income |
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Definition
Personal income - personal taxes
aka
Houseold consumption + Household saving |
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Term
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Definition
Personal disposable income - consumption expenditures - interest paid by consumers to businesses - personal transfer payments to foreigners |
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Term
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Definition
Undistributed corporate profits + capital consumption allowance |
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Term
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Definition
Household consumption + total private sector saving + Net taxes |
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Term
Equality of expenditure and income |
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Definition
S = I + (G - T) + (X - M)
S is savings? I is investment or income? |
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Term
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Definition
Relationship between income and the Real Interest Rate
Disposable income = GDP - Business saving - Net taxes
S - I = (G - T) + (X - M) |
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Term
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Definition
MV = PY M/P and Md/P = kY
Where:
k = I/V
M = Nominal money supply
Md = Nominal money demand
Md/P is referred to as real money demand and M/P is real money supply |
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Term
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Definition
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Term
Solow (neoclassical) growth model |
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Definition
Y = AF(L,K)
Where:
Y = aggregate output
L = quantity of labor
K = quantity of capital
A = technological knowledge or total factor productivity (TFP) |
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Term
Growth Accounting Equation |
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Definition
Growth in potential GDP = Growth in technology + WL(Growth in Labor) + WK(Growth in Capital)
Growth in per capital potential GDP = Growth in technology + WK(Growth in capital-labor ratio |
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Term
Measures of Sustainable Growth |
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Definition
Labor Productivity Potential GDP |
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Term
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Definition
Real GDP / Aggregate hours |
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Term
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Definition
Aggregate hours * Labor productivity |
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Term
Potential GDP Growth rate |
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Definition
Long-term growth rate of labor force + Long-term labor productivity growth rate |
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Term
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Definition
ULC = W/O
Where:
O = output per hour per worker
W = total labor compensation per hour per worker |
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Term
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Definition
Required reserve / Total Deposits |
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Term
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Definition
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Term
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Definition
Nominal interest rate (RN) reflects the real interest rate (RR) and the expected inflation rate (∏C)
RN = RR + ∏C |
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Term
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Definition
Ignoring taxes:
1/(1-MPC)
Assuming taxes:
1/[1 - MPC(1-t)] |
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Term
Balance of Payment Components |
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Definition
Current Account
Capital Account
Financial Account |
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Term
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Definition
Balance largely reflects trade in goods and services |
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Term
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Definition
Blaance mainly consists of capital transfers and net sales of non-produced, non-financial assets |
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Term
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Definition
Measures net capital flows based on sales and purchases of domestic and foreign financial assets |
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Term
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Definition
SDC/FC * (PFC / PDC)
SDC/FC = Nominal Spot exchange rate
PFC = foreign price level (quoted in terms of the foreign currency)
PDC = Domestic price level (qutoed in terms of the domestic currency) |
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Term
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Definition
FDC/FC = (1 / SFC/DC) * [(1 + rDC) / (1 + rFC)]
or
FDC/FC = SDC/FC * [(1 + rDC) / (1 + rFC)] |
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Term
Forward Rate as expected future spot rate |
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Definition
Ft = St+1
[(St + 1) / S] - 1 = % change in S(DC/FC)t + 1 = (rDC - rFC) / (1 + rFC) |
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Term
Marshall-Lerner condition |
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Definition
ωXεX + ωM(εM - 1) > 0
Where:
ωX = Share of exports in total trade
ωM = Share of imports in total trade
εX = Price elasticity of demand for exports
εM = Price elasticity of demand for imports |
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Term
Cash movement prior to accounting recognition |
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Definition
Unearned (deferred) Revenue Prepaid expense |
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Term
Cash movement after Accounting Recognition |
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Definition
Unbilled (accrued) Revenue Accrued Expenses |
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Term
Unearned (deferred) Revenue Entries |
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Definition
Originating - record cash receipt and establish a liability
Adjusting - reduce the liability and recognize revenue |
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Term
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Definition
Originating Entry - record cash payment and establish an asset
Adjusting - Reduce the asset and recognize the expense |
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Term
Cash movement in the same period as accounting recognition |
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Definition
Settled transaction - no accrual entry needed |
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Term
Unbilled (accrued) Revenue Entries |
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Definition
Originating - record revenue and establish an asset
Adjusting - When billing occurs, reduce unbilled revenue and increase accounts receivable. When cash is collected, eliminate the receivable |
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Term
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Definition
Originating - Establish a liability and record an expense
Adjusting - reduce the liability as cash is paid |
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Term
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Definition
[Net income - Preferred dividends] / Weighted average number of shares outstanding |
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Term
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Definition
[(Net income - Preferred dividends) + Convertible preferred dividends + (Convertible debt interest * (1 - t))] / [Weighted average shares + Shares from conversion of convertible preferred shares + Shares from conversion of convertible debt + Shares issuable from stock options |
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Term
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Definition
Net Income + Other comprehensive income |
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Term
Gains and Losses on Marketable Securities: Balance sheet - Held-to-Maturity securities |
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Definition
Reported at cost or amortized cost |
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Term
Gains and Losses on Marketable Securities: Balance sheet - Available-for-sale Securities |
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Definition
Reported at fair value. Unrealized gains or losses due to changes in market values are reported in other comprehensive income within owners' equity |
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Term
Gains and Losses on Marketable Securities: Balance sheet - Trading Securities |
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Definition
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Term
Gains and Losses on Marketable Securities: Income Statement - Held-to-Maturity Securities |
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Definition
Interest Income.
Realized gains and losses |
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Term
Gains and Losses on Marketable Securities: Income Statement - Available-for-sale Securities |
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Definition
Dividend Income.
Interest Income.
Realized gains and losses. |
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Term
Gains and Losses on Marketable Securities: Income Statement - Trading Securities |
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Definition
Dividend Income.
Interest Income.
Realized gains and losses.
Unrealized gains and losses due to change in market values |
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Term
Cash Flow from Operations: Inflows |
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Definition
Cash collected from customers
Interest and dividends received
Proceeds from sale of securities held for trading |
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Term
Cash Flow from Operations: Outflows |
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Definition
Cash paid to employees
Cash paid to suppliers
Cash paid for other expenses
Cash used to purchase trading securities
Interest paid
Taxes paid |
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Term
Cash Flow from Investment: Inflows |
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Definition
Sale proceeds from fixed assets
Sale proceeds from long-term invetments |
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Term
Cash Flow from Investment: Outflows |
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Definition
Purchase of fixed assets
Cash used to acquire LT investment securities |
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Term
Cash Flow from Financing: Inflows |
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Definition
Proceeds from debt issuance
Proceeds from issuance of equity instruments |
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Term
Cash Flow from Financing: Outflows |
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Definition
Repayment of LT Debt
Payments made to repurchase stock
Dividends payments |
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Term
Cash Flow Classification under IFRS and GAAP:
Interest and dividends recieved |
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Definition
IFRS - CFO or CFI US GAAP - CFO |
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Term
Cash Flow Classification under IFRS and GAAP:
Interest Paid |
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Definition
IFRS - CFO or CFF
US GAAP - CFO |
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Term
Cash Flow Classification under IFRS and GAAP:
Dividends paid |
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Definition
IFRS - CFO or CFF
US GAAP - CFF |
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Term
Cash Flow Classification under IFRS and GAAP:
Dividends Received |
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Definition
IFRS - CFO or CFI
US GAAP - CFO |
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Term
Cash Flow Classification under IFRS and GAAP:
Taxes paid |
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Definition
IFRS - CFO, but part of the tax can be categorized as CFI or CFF if it is clear that the tax arose from investing or financing activities
US GAAP - CFO |
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Term
Cash Flow Classification under IFRS and GAAP:
Bank overdrafts |
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Definition
IFRS - Included as a part of cash equivalents
GAAP - not considered a part of cash equivalents and included in CFF |
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Term
CFO Presentation format under IFRS and US GAAP |
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Definition
IFRS - Direct or indirect. The former is preferred.
US GAAP - Direct or indirect. The former is preferred. However, if the direct method is used, a reconciliation of net income and CFO must be included |
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Term
Disclosures on CF Statements under IFRS |
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Definition
Taxes paid should be presented separately on the cash flow statement |
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Term
Disclosures on CF Statments under US GAAP |
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Definition
If taxes and interest paid are not explicitly stated on the cash flow statement, details can be provided in footnotes |
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Term
Free Cash Flow to the Firm |
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Definition
FCFF = NI + NCC + [Int * (1-t)] - FCInv - WCInv
FCFF = CFO + [Int * (1-t)] - FCInv |
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Term
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Definition
FCFE = CFO - FCInv + Net Borrowing |
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Term
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Definition
Cost of Goods Sold / Average Inventory |
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Term
Days of Inventory on Hand (DOH) |
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Definition
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Term
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Definition
Revenue / Average Recievables |
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Term
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Definition
365 / Receivables Turnover |
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Term
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Definition
Purchase / Average trade payables |
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Term
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Definition
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Term
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Definition
Revenue / Average Working Capital |
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Term
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Definition
Revenue / Average Fixed Assets |
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Term
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Definition
Revenue / Average Total Assets |
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Term
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Definition
Current Assets / Current Liabilities |
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Term
|
Definition
[Cash + Short-term marketable investments + receivables] / Current liabilities |
|
|
Term
|
Definition
[Cash + short-term marketable investments] / Current liabiliteis |
|
|
Term
|
Definition
[Cash + short-term marketable investments + receivables] / Daily cash expenditures |
|
|
Term
|
Definition
DSO + DOH - Number of Days Payables |
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|
Term
|
Definition
Total Debt / Total Assets |
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|
Term
|
Definition
Total Debt / [Total debt + Shareholders Equity] |
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|
Term
|
Definition
Total Det / Shareholders' Equity |
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|
Term
|
Definition
Average Total Assets / Average Total Equity |
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|
Term
|
Definition
|
|
Term
Fixed Charge Coverage Ratio |
|
Definition
[EBIT + Lease Payments] / [Interest Payments + Lease Payments] |
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|
Term
|
Definition
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|
Term
|
Definition
Operating Profit / Revenue |
|
|
Term
|
Definition
EBT (Earnings before tax, but after interest) / Revenue |
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|
Term
|
Definition
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|
Term
|
Definition
Net Income / Average Total Assets |
|
|
Term
Adjusted Return on Assets |
|
Definition
[Net Income + (Interest Expense * (1-t)] / Average total assets |
|
|
Term
Operating Return on Assets |
|
Definition
Operating Income or EBIT / Average total assets |
|
|
Term
|
Definition
EBIT / [Short-term debt + long-term debt + equity] |
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|
Term
|
Definition
Net Income / Average Total Equity |
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|
Term
|
Definition
[Net Income - Preferred Dividends] / Average Common Equity |
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|
Term
DuPont Decomposition of ROE |
|
Definition
Net Income / Average Shareholders' Equity |
|
|
Term
2-Way DuPont Decomposition of ROE |
|
Definition
[Net Income / Average total Assets] * [Average Total Assets / Average Shareholders' Equity]
ROA * Leverage |
|
|
Term
3-Way DuPont Decomposition of ROE |
|
Definition
[Net Income / Revenue] * [Revenue / Average total assets] * [Average total assets / average shareholders' equity]
Net Profit Margin * Asset Turnover * Leverage |
|
|
Term
5-Way Dupont Decomposition |
|
Definition
[Net Income / EBT] * [EBT / EBIT] * [EBIT / Revenue] * [Revenue / Average Total Assets] * [Average total assets / Average shareholders' equity]
Tax Burden * Interest Burden * EBIT Margin * Asset turnover * Leverage |
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Term
|
Definition
Price per share / Earnings per share |
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|
Term
|
Definition
Price per share / Cash flow per share |
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|
Term
|
Definition
Price per Share / Sales per share |
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|
Term
|
Definition
Price per Share / Book Value per Share |
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Term
|
Definition
Cash flow from operations / average number of shares outstanding |
|
|
Term
|
Definition
EBITDA / Average number of shares outstanding |
|
|
Term
|
Definition
Common Dividends Declared / Weighted average number of ordinary shares |
|
|
Term
|
Definition
Common share dividends / Net income attributable to common shares |
|
|
Term
|
Definition
1 - Dividend Payout Ratio |
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|
Term
|
Definition
|
|
Term
LIFO vs FIFO when Prices are Rising:
COGS |
|
Definition
LIFO - higher
FIFO - Lower |
|
|
Term
LIFO vs FIFO when Prices are Rising:
Income before taxes |
|
Definition
LIFO - lower
FIFO - Higher |
|
|
Term
LIFO vs FIFO when Prices are Rising:
Income taxes |
|
Definition
LIFO - Lower
FIFO - Higher |
|
|
Term
LIFO vs FIFO when Prices are Rising:
Net Income |
|
Definition
LIFO - Lower
FIFO - Higher |
|
|
Term
LIFO vs FIFO when Prices are Rising:
Cash Flow |
|
Definition
LIFO - Higher
FIFO - Lower |
|
|
Term
LIFO vs FIFO when Prices are Rising:
EI |
|
Definition
LIFO - Lower
FIFO - Higher |
|
|
Term
LIFO vs FIFO when Prices are Rising:
Working Capital |
|
Definition
LIFO - Lower
FIFO - Higher |
|
|
Term
LIFO vs FIFO when Prices are Rising, Effect on Ratio:
Profitablility Ratios, NP and GP Margin |
|
Definition
Numberator - Income is lower unde rLIFO b/c COGS is higher
Denominator - Sales are the same under both
Effect on Ratio - Lower under lifo |
|
|
Term
LIFO vs FIFO when Prices are Rising, Effect on Ratio:
Debt to Equity |
|
Definition
Numerator - same debt levels
Denominator - Lower equity number under LIFO
Effect on Ratio - Higher under LIFO |
|
|
Term
LIFO vs FIFO when Prices are Rising, Effect on Ratio:
Current Ratio |
|
Definition
Numerator - current assets are lower under LIFO because EI is lower
Denominator - Current liabilities are the same
Effect on Ratio - Lower under LIFO |
|
|
Term
LIFO vs FIFO when Prices are Rising, Effect on Ratio:
Quick Ratio |
|
Definition
Numerator - Assets are higher as a result of lower taxes paid
Denominator - Current liabilities are the same
Effect on ratio - Higher under LIFO |
|
|
Term
LIFO vs FIFO when Prices are Rising, Effect on Ratio:
Inventory Turnover |
|
Definition
Numerator - COGS is higher under LIFO
Denominator - Average inventory is lower under LIFO
Effect on Ratio - Higher under LIFO |
|
|
Term
LIFO vs FIFO when Prices are Rising, Effect on Ratio:
Total Asset Turnover |
|
Definition
Numerator - Sales are the same
Denominator - Lower total assets under LIFO
Effect on Ratio - Higher under LIFO |
|
|
Term
Initial effect on statements when a cost is capitalized |
|
Definition
Noncurrent assets increase
Cash flow from investing activities decreases |
|
|
Term
Future period effect on statements when a cost is capitalized |
|
Definition
The asset is depreciated or amortized:
Noncurrent assets decrease
Net Income decreases
Retained earnings decrease
Equity decreases |
|
|
Term
Effect on financial statements when a cost is expensed |
|
Definition
Net Income decreases by the entire after-tax amount of the cost
No related asset is recorded on the BS and therefore, no depreciation or amortization expense is charged in future periods
Operating cash flow decreases
Expensed costs have no financial statements impact in future years |
|
|
Term
Capitalizing vs Expensing Costs:
Net Income (First Year) |
|
Definition
Capitalizing - Higher
Expensing - Lower |
|
|
Term
Capitalizing vs Expensing Costs:
Net Income (Future years) |
|
Definition
Capitalizing - Lower
Expensing - Higher |
|
|
Term
Capitalizing vs Expensing Costs:
Total Assets |
|
Definition
Capitalizing - Higher
Expensing - Lower |
|
|
Term
Capitalizing vs Expensing Costs:
Shareholders' Equity |
|
Definition
Capitalizing - Higher
Expensing - Lower |
|
|
Term
Capitalizing vs Expensing Costs:
CF Operations |
|
Definition
Capitalizing - Higher
Expensing - Lower |
|
|
Term
Capitalizing vs Expensing Costs:
CF Investing |
|
Definition
Capitalizing - Lower
Expensing - Higher |
|
|
Term
Capitalizing vs Expensing Costs:
Income Variabliity |
|
Definition
Capitalizing - Lower
Expensing - Higher |
|
|
Term
Capitalizing vs Expensing Costs:
Debt to Equity |
|
Definition
Capitalizing - Lower
Expensing - Higher |
|
|
Term
Depreciation Expense under Straight Line |
|
Definition
[Original Cost - Salvage Value] / Depreciable Life |
|
|
Term
Depreciation Expense under Accelerated |
|
Definition
Dep in Year X = [2 / Depreciable Life] * Bok value at the beginning of Year X |
|
|
Term
|
Definition
Gross Investment in Fixed Assets / Annual Depreciation Expense |
|
|
Term
|
Definition
Accumulated Deprecation / Annual Depreciation Expense |
|
|
Term
|
Definition
Net Investment in Fixed Assets / Annual Depreciation Expense |
|
|
Term
Carrying amount greater than tax base for Asset and Liability |
|
Definition
Asset - Results in Deferred Tax Liability
Liability - Results in Deferred Tax Asset |
|
|
Term
Tax base greater than carrying amount for Asset and Liability |
|
Definition
Asset - Results in Deferred Tax Asset
Liability - Results in Deferred Tax Liability |
|
|
Term
Income Tax Accounting under IFRS vs GAAP:
Revaluation of Fixed Assets and Intangible Assets |
|
Definition
IFRS - Recognized in equity as deferred taxes
GAAP - Revaluation is prohibited |
|
|
Term
Income Tax Accounting under IFRS vs GAAP:
Treatment of undistributed profit from investment in subsidiaries |
|
Definition
IFRS - Recognized as deferred taxes except when the company is able to control the distribution of profits and it is probable that temporary differences will not reverse in future
GAAP - No recognition of deferred taxes for foreign subsidiaries that fulfill indefinite reversal criteria. No recognition of deferred taxes for domestic subsidiaries when amounts are tax-free |
|
|
Term
Income Tax Accounting under IFRS vs GAAP:
Treatment of undistributed profit from investments in joint venture |
|
Definition
IFRS - Recognized as deferred taxes except when the investor controls the sharing of profits and it is probable that there will be no reversal of temporary differences in future
GAAP - No recognition of deferred taxes for foreign corporate joint ventures that fulfill indefinite reversal criteria |
|
|
Term
Income Tax Accounting under IFRS vs GAAP:
Treatment of Undistributed Profit from Investment in Associates |
|
Definition
IFRS - Recognized as deferred taxes except when the investor controls the sharing of profits and it is probable that there will be no reversal of temporary differences in future
GAAP - Deferred taxes are recognized from temporary differences |
|
|
Term
Income Tax Accounting under IFRS vs GAAP: Deferred Tax Measurement:
Tax Rates |
|
Definition
IFRS - Tax rates and tax laws enacted or substantively enacted
GAAP - Only enacted tax rates and tax laws are used |
|
|
Term
Income Tax Accounting under IFRS vs GAAP: Deferred Tax Measurement:
Deferred tax asset recognition |
|
Definition
IFRS - Recognized if it is probable that sufficient taxable profit will be available in the future
GAAP - Deferred tax assets are recognized in full and then reduced by a valuation allowance if it is likely that they will not be realized |
|
|
Term
Income Tax Accounting under IFRS vs GAAP: Deferred Tax Presentation:
Offsetting of Deferred Tax Assets and Liabilities |
|
Definition
IFRS - Offsetting allowed only if the entity has right to legally enforce it and the balance is related to a tax levied by the same authority
GAAP - Same as in IFRS |
|
|
Term
Income Tax Accounting under IFRS vs GAAP: Deferred Tax Presentation:
Balance Sheet Classification |
|
Definition
IFRS - Classified on balance sheet as net noncurrent with supplementary disclosures
GAAP - Classified as either current or noncurrent based on classification of underlying asset and liability |
|
|
Term
|
Definition
Income tax expense / Pretax Income |
|
|
Term
|
Definition
Taxes Payable + Change in DTL - Change in DTA |
|
|
Term
Income Statement Effects of Lease Classification:
Operating Expenses |
|
Definition
Finance Lease - Lower
Operating Lease - Higher |
|
|
Term
Income Statement Effects of Lease Classification:
Nonoperating Expenses |
|
Definition
Finance Lease - Higher
Operating Lease - Lower |
|
|
Term
Income Statement Effects of Lease Classification:
EBIT (Operating Income) |
|
Definition
Finance Lease - Higher
Operating Lease - Lower |
|
|
Term
Income Statement Effects of Lease Classification:
Total Expenses - early years |
|
Definition
Finance Lease - Higher
Operating Lease - Lower |
|
|
Term
Income Statement Effects of Lease Classification:
Total Expenses - later years |
|
Definition
Finance Lease - Lower
Operating Lease - Higher |
|
|
Term
Income Statement Effects of Lease Classification:
Net Income - early years |
|
Definition
Finance Lease - Lower
Operating Lease - Higher |
|
|
Term
Income Statement Effects of Lease Classification:
Net Income - later years |
|
Definition
Finance Lease - Higher
Operating Lease - Lower |
|
|
Term
Balance Sheet Effects of Lease Classification:
Assets |
|
Definition
Capital Lease - Higher
Operating Lease - Lower |
|
|
Term
Balance Sheet Effects of Lease Classification:
Current Labilities |
|
Definition
Capital Lease - Higher
Operating Lease - Lower |
|
|
Term
Balance Sheet Effects of Lease Classification:
Long Term Liabilities |
|
Definition
Capital Lease - Higher
Operating Lease - Lower |
|
|
Term
Balance Sheet Effects of Lease Classification:
Total Cash |
|
Definition
Capital Lease - Same
Operating Lease - Same |
|
|
Term
Cash Flow Effects of Lease Classification:
Cash Flow from Operations |
|
Definition
Capital Lease - Higher
Operating Lease - Lower |
|
|
Term
Cash Flow Effects of Lease Classification:
Cash Flow from Finance |
|
Definition
Capital Lease - Lower
Operating Lease - Higher |
|
|
Term
Cash Flow Effects of Lease Classification:
Total Cash Flow |
|
Definition
Capital Lease - Same
Operating Lease - Same |
|
|
Term
Impact of Lease Classification on Financial Ratio:
Asset Turnover |
|
Definition
Numerator - Sales - same
Denominator - Assets - higher
Effect on Ratio - Lower
Ratio is worse under finance lease |
|
|
Term
Impact of Lease Classification on Financial Ratio:
Return on Assets (in early years) |
|
Definition
Numerator - NI lower in early years
Denominator - Assets - Higher
Effect on Ratio - Lower
Ratio is worse under finance lease |
|
|
Term
Impact of Lease Classification on Financial Ratio:
Current Ratio |
|
Definition
Numerator - Current Assets - same
Denominator - Current Liabilities - higher
Effect on Ratio - Lower
Ratio is worse under finance lease |
|
|
Term
Impact of Lease Classification on Financial Ratio:
Leverage Ratios (D/E and D/A) |
|
Definition
Numerator - Debt - Higher
Denominator - Equity - Same; Assets - Higher
Effect on Ratio - Higher
Ratio is worse under finance lease |
|
|
Term
Impact of Lease Classification on Financial Ratio:
Return on Equity (in early years) |
|
Definition
Numerator - NI lower in early years
Denominator - Equity- same
Effect on Ratio - Lower
Ratio is worse under finance lease |
|
|
Term
Financial Statement Effects of Lease Classification from Lessor's Perspective:
Total Net Income |
|
Definition
Financing Lease - Same
Operating Lease - Same |
|
|
Term
Financial Statement Effects of Lease Classification from Lessor's Perspective:
Net Income (early years) |
|
Definition
Financing Lease - Higher
Operating Lease - Lower |
|
|
Term
Financial Statement Effects of Lease Classification from Lessor's Perspective:
Taxes (early years) |
|
Definition
Financing Lease - Higher
Operating Lease - Lower |
|
|
Term
Financial Statement Effects of Lease Classification from Lessor's Perspective:
Total CFO |
|
Definition
Financing Lease - Lower
Operating Lease - Higher |
|
|
Term
Financial Statement Effects of Lease Classification from Lessor's Perspective:
Total CFI |
|
Definition
Financing Lease - Higher
Operating Lease - Lower |
|
|
Term
Financial Statement Effects of Lease Classification from Lessor's Perspective:
Total CF |
|
Definition
Financing Lease - Same
Operating Lease - Same |
|
|
Term
|
Definition
Debt-to-assets ratio Debt-to-capital ratio Debt-to-equity ratio Financial Leverage Ratio |
|
|
Term
|
Definition
Expresses the percentage of total assets financed by debts
Total Debt / Total Assets |
|
|
Term
|
Definition
Measures the percentage of a company's total capital financed by debt
Total Debt / [Total Debt + Total Shareholders' Equity] |
|
|
Term
|
Definition
Measures the amount of debt financing relative to equity financing
Total Debt / Total Shareholders' Equity |
|
|
Term
|
Definition
Measures the amount of total assets supported by one money unit of equity
Average Total Assets / Average Shareholders' Equity |
|
|
Term
|
Definition
Interest Coverage Ratio Fixed Charge Coverage Ratio |
|
|
Term
|
Definition
Measures the number of times a company's EBIT could cover its interest payments
EBIT / Interest Payments |
|
|
Term
Fixed Charge Coverage Ratio |
|
Definition
Measures the number of times a company's earnings (before interest, taxes, and lease payments) can cover the company's interest and lease payments
[EBIT + Lease payments] / [Interest Payments + Lease Payments] |
|
|
Term
Adjustments Related to Inventory |
|
Definition
EIFIFO = EILIFO + LR (aka LIFO Reserve)
COGSFIFO = COGSLIFO - (Change in LR during the year) |
|
|
Term
Net Income Tax under FIFO will be greater than LIFO net income after tax by: |
|
Definition
Change in LIFO Reserve * (1 - Tax Rate) |
|
|
Term
When Converting from LIFO to FIFO Assuming Rising Prices:
Equity (retained earnings) change by: |
|
Definition
Increase:
LIFO Reserve * (1 - Tax Rate) |
|
|
Term
When Converting from LIFO to FIFO Assuming Rising Prices:
Liabilities (deferred taxes) change by: |
|
Definition
Increase:
LIFO Reserve * Tax Rate |
|
|
Term
When Converting from LIFO to FIFO Assuming Rising Prices:
Current Assets (inventory) change by: |
|
Definition
|
|
Term
Adjustments Related to Property, Plant, and Equipment |
|
Definition
Gross Investment in fixed assets / Annual Deprediation Expense= [Accumulated depreciation expense / Annual Depreciation expense] + [Net Investment in Fixed Assets / Annual Depreciation Expense
Estimated Useful or Depreciable Live = Average age of asset + Remaining Useful Life |
|
|
Term
Categories of Marketable Securities and Accounting Treatment:
Held-to-maturity |
|
Definition
Balance Sheet Value - Amortized cost (Par value +/- unamortized premium/discount)
Gains and Losses: Unrealized - Not reported Realized - Recognized on income statement
Income (Interest and Dividends) - Recognized on Income Statement |
|
|
Term
Categories of Marketable Securities and Accounting Treatment:
Held-for-trading |
|
Definition
Balance Sheet Value - Fair Value
Gains and Losses: Unrealized - Recognized on income statement Realized - Recognized on income Statement
Income (Interest & Dividends) - Recognized on Income statement |
|
|
Term
Categories of Marketable Securities and Accounting Treatment:
Available-for-sale |
|
Definition
Balance Sheet Value - Fair Value
Gains and Losses: Unrealized - recognized in other comprehensive income Realized - Recognized on Income Statment
Income (Interest & Dividends) - recognized on income statement |
|
|
Term
Property Plant and Equipment:
US GAAP |
|
Definition
Balance Sheet - Cost minus accumulated depreciation
Changes in BS Value - Does not permit upward revaluation
Effects of changes in BS Value - No effect |
|
|
Term
Property Plant and Equipment:
IFRS |
|
Definition
Balance Sheet - Cost minus accumulated Deprecation
Changes in BS Value - Permits upward revaluation. Asset is reported at fair value at the revaluation date less accumulated depreciation following the revaluation
Effects of Changes in BS Value - Increase in asset's value from revaluation is reported as a part of equity unless it is reversing a previously-recognized decrease in the value of the asset. Decrease is reported on IS unless it is a reversal |
|
|
Term
Long-Term Investment Extent of Control and Accounting Treatment:
Less than 20% |
|
Definition
Extent of Control - No significant control
Accounting Treatment - Classified as held-to-maturit, trading, or available for sale securities |
|
|
Term
Long-Term Investment Extent of Control and Accounting Treatment:
20-50% |
|
Definition
Extent of Control - Significant Influence
Accounting Treatment - Equity method |
|
|
Term
Long-Term Investment Extent of Control and Accounting Treatment:
More than 50% |
|
Definition
Extent of Control - Significant control
Accounting Treatment - Consolidation |
|
|
Term
Long-Term Investment Extent of Control and Accounting Treatment:
Shared (joint ventures) |
|
Definition
Extent of Control - Joint control
Accounting Treatment - Equity method/proportionate consolidation |
|
|
Term
Treatment of Identifiable Intangible Assets:
GAAP |
|
Definition
BS - Only purchased may be recognized as assets. Developed cannot. Reported at cost - accumulated amort for assets with finite useful lives, cost - impairment for assets with infinite useful lives
Changes in BS Value - Does not purmit upward revaluation
Effects of Changes in BS Value - No effect |
|
|
Term
Treatment of Identifiable Intangible Assets:
IFRS |
|
Definition
BS - Only purchsed may be recognized as assets, internally developed may not. Finite useful lives - reported at cost - accum amort. Infinite useful lives - reported at cost - impairment
Changes in BS Value - Permits upward revaluation. Reported at fair value as of reval date less subsequent accum amort.
Effects of Changes in BS Value - Increase - part of equity (unless a reversal) Decrease - on IS unless it is a reversal |
|
|
Term
|
Definition
Outcome can be reliably estimated - percentage-of-completion method
Outcome cannot be reliably estimated - completed contract method |
|
|
Term
|
Definition
Outcome can be reliably estimated - percentage-of-completion method
Outcome cannot be reliably estimated - revenue is recognized to the extent that is is probable to recover contract costs. Profit is only recognized at project completion |
|
|
Term
|
Definition
Sum of discounted cash flows - Initial Cash Outlay
∑[CFt / (1 + r)t] - Outlay |
|
|
Term
|
Definition
Discount rate that equates the cash flows with the initial cash outlay
∑[CFt / (1 + IRR)t] = Outlay |
|
|
Term
Average Accounting Rate of Return (AAR) |
|
Definition
Average Net Income / Average Book Value |
|
|
Term
|
Definition
PV of Future Cash flows / Initial Investment or 1 + [NPV / Initial Investment] |
|
|
Term
Weighted Average Cost of Capital |
|
Definition
WACC = [(wd)(rd)(1 - t)] + [(wp)(rp)] + [(wc)(rc)]
p = preferred stock
c = common equity
d = debt |
|
|
Term
Transforming Debt-to-Equity Ratio into a components weight |
|
Definition
[D/E] / [1 + (D/E)] = D / [D + E] = wd |
|
|
Term
|
Definition
Sum of PV of Payments + PV of Principal repayments |
|
|
Term
Valuation of Preferred Stock |
|
Definition
vp = Dp/rp
v = value
D = dividend
r = cost of preferred stock |
|
|
Term
Measures of Required Return on a Stock |
|
Definition
CAPM
Dividend Discount Model |
|
|
Term
Capital Asset Pricing Model |
|
Definition
|
|
Term
|
Definition
P0 = D1 / [rc - g]
g = expected constant growth rate of dividends
rc = required rate of return on common equity
Rearranges to: rc = [D1 / P0] + g |
|
|
Term
|
Definition
g = [1 - (D/EPS)] * ROE [
1 - (D/EPS)] aka Earnings Retention Rate (1 - div payout ratio) |
|
|
Term
Bond Yield Plus risk premium approach |
|
Definition
|
|
Term
|
Definition
βAsset = βEquity * [1 / (1 + (1-t)*(D/E))] |
|
|
Term
|
Definition
βProject = βAsset * [1 + ((1-t)*(D/E))] |
|
|
Term
|
Definition
rc = Rf + β[E(RM) - RF + CRP]
or
Sovereign yield spread * (Annualized SD of equity index / Annualized SD of Sovereign bond market in terms of the developed market currency) |
|
|
Term
|
Definition
Amount of capital at which a component's cost of capital changes / proportion of new capital raised from the component |
|
|
Term
Degree of Operating Leverage |
|
Definition
DOL = Percent Change in Operating Income / Percent change in units sold |
|
|
Term
Degree of Operating Leverage Formula |
|
Definition
[Q * (P - V)] / [(Q * (P - V)) - F]
Q = number of units sold P = Price per unit V = Variable operating cost per unit F = Fixed operating cost Q * (P - V) = Contribution Margin (amount that units sold contribute to covering fixed costs |
|
|
Term
Degree of Financial Leverage |
|
Definition
DFL = Percentage Change in Net Income / Percentage Change in Operating Income |
|
|
Term
Degree of Financial Leverage Formula |
|
Definition
DFL = [Q(P - V) - F] / [Q(P - V) - F - C]
Q = number of units sold P = Price per unit V = Variable operating cost per unit F = Fixed operating cost C = Fixed financial cost |
|
|
Term
|
Definition
Percentage Change in Net Income / Percentage Change in the Number of Units Sold |
|
|
Term
Degree of Total Leverage Formula |
|
Definition
DTL = DOL * DFL
DTL = [Q * (P - V)] / [Q * (P - V) - F - C] |
|
|
Term
|
Definition
PQ = VQ + F + C
P = Price per unit
Q = Number of units produced and sold
V = Variable cost per unit
F = Fixed operating costs
C = Fixed financial costs
QBE = (F + C) / (P - V) |
|
|
Term
Operating Break Even Point |
|
Definition
PQOBE = PV + F
QOBE = F / (P - V)
P = Price per unit
Q = Number of units produced and sold
V = Variable cost per unit
F = Fixed operating costs |
|
|
Term
|
Definition
Current Assets / Current Liabilities |
|
|
Term
|
Definition
(Cash + Short term marketable investments + receivables) / Current Liabilities |
|
|
Term
Accounts Receivable Turnover (CorpFin) |
|
Definition
Credit Sales / Average Recievables |
|
|
Term
Number of Days of Receivables (CorpFin) |
|
Definition
Accounts Receivable / Average Days Sales on credit
Accounts Receivable / [Sales on Credit / 365] |
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Term
Inventory Turnover (CorpFin) |
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Definition
Cost of Goods Sold / Average Inventory |
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Term
Number of Days of Inventory (CorpFin) |
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Definition
Inventory / Average day's COGS
Inventory / [COGS / 365] |
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Term
Payables Turnover (CorpFin) |
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Definition
Purchases / Average Trade Payables |
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Term
Number of Days of Payables (CorpFin) |
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Definition
Accounts payables / Average day's purchases
Accounts payables / [Purchases / 365] |
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Term
|
Definition
Ending Inventory + COGS - Ending Inventory |
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Term
Operating Cycle (CorpFin) |
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Definition
Number of Days of Inventory + Number of Days of recievables
[Inventory / [COGS / 365]] + [Accounts Receivable / [Sales on Credit / 365]] |
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Term
Net Operating Cycle (CorpFin) |
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Definition
Number of days of inventory + number of days of receivables - number of days of payables |
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Term
Money Market Yield (CorpFin) |
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Definition
[(Face value - price) / Price] * [360 / Days]
HPY * [360 / Days] |
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Term
Bond Equivalent Yield (CorpFin) |
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Definition
[(Face value - price) / Price] * (365/Days)
HPY * (365/Days) |
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Term
Discount Basis Yield (CorpFin) |
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Definition
[(Face value - price) / Face Value] * (360/Days)
% Discount * (360/Days) |
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Term
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Definition
[Face value - price] / Price |
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Term
Inventory Turnover (CorpFin) |
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Definition
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Term
Cost of Trade Credit (aka Implicit Rate) |
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Definition
[1 + (Discount / (1 - Discount))][365 / Days beyond discount period] - 1
Not sure if -1 is raised up or not |
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Term
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Definition
(Interest + Commitment fee) / Loan amount |
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Term
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Definition
Interest / Net proceeds
Interests / (Loan amount - Interest) |
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Term
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Definition
R = [(PT + DT) / P0] - 1
PT = Price at end
DT = Dividends paid
P0 = Price at the beginning of the period |
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Term
Holding Period return - multiple periods |
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Definition
R = [(1 + R1)*(1 + R2)*...*(1 + RN)] - 1
Rs are sub-period returns
**Return for WHOLE period |
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Term
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Definition
R = [[(1 + R1)*(1 + R2)*...*(1 + RN)](1/n)] - 1
**ANNUAL return |
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Term
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Definition
rannual = [(1 + rperiod)n] - 1
r = Return on Investment
n = Number of periods in a year |
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Term
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Definition
Rp = w1R1 + w2R2
w = Weight of asset
R = Return on asset |
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Term
Variance of a Single Asset |
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Definition
σ2 = [Σ(Rt - μ)2] / T
Rt = Return for period t
T = total number of period
u = Mean of T returns |
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Term
Variance of a Representative Sample of the Population |
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Definition
σ2 = [Σ(Rt - R)2] / [T - 1]
R = mean return of the sample observations
σ2 = sample variance |
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Term
Standard deviation of an asset |
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Definition
σ = [[∑(Rt - μ)2] / T]1/2
For a sample, denominator is T - 1 |
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Term
Variance of a Portfolio of Assets |
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Definition
σp2 = ∑wiwjCov(Ri,Rj)
or
σp2 = Σwi2Var(Ri) + ΣwiwjCov(Ri,Rj) |
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Term
Standard deviation of a portfolio of Two Risky Assets |
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Definition
σp = [w12σ12 + w22σ22 + 2w1w2σ1σ2ρ1,2]1/2
or
[w12σ12 + w22σ22 + 2w1w2Cov1,2]1/2 |
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Term
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Definition
U = E(R) - (1/2)Aσ2
Where:
U = utility of an investment
E(R) = Expected Return
σ2 = Variance of Returns
A = Additional return required by the investor to accept an additional unit of risk |
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Term
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Definition
[E(Ri) - Rf] / σi
CAL has intercept of Rf and a constant slope given by the above formula |
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Term
Expected Return on Portfolios that lie on CML |
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Definition
E(Rp) = w1Rf + (1-w1)E(Rm)
w1 = Weight in risk free asset
E(Rm) = expected market return |
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Term
Variance of portfolios that lie on CML |
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Definition
σ2 = [w12σ2f + (1-w1)2σ2m + 2w1(1-w1)Cov(Rf,Rm)]1/2 |
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Term
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Definition
E(Rp) = Rf + [(E(Rm) - Rf)/σm] * σp
Slope ((E(Rm) - Rf)/σm) is the market price of risk |
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Term
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Definition
Systematic + Unsystematic Risk |
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Term
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Definition
E(Ri) - Rf = βi1[E(Rm) - Rf] + ΣβijE(Fj) |
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Term
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Definition
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Term
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Definition
βi = Cov(Ri,Rm) / σ2m = [ρi,mσiσm] / σ2m = ρi,mσi / σm |
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Term
Capital Asset Pricing Model |
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Definition
E(Ri) = Rf + βi[E(Rm) - Rf] |
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Term
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Definition
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Term
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Definition
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Term
|
Definition
[Rp - Rf]*[σm/σp] - (Rm - Rf) |
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Term
|
Definition
αp = Rp - [Rf + βp(Rm - Rf)] |
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Term
Security Characteristic Line |
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Definition
Ri - Rf = αi + βi(Rm - Rf) |
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Term
Calculating a Margin Call |
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Definition
P0 * [(1-Initial Margin) / (1-Maintenance Margin)]
Gives price at which an investor who goes long on a stock recieves a margin call |
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Term
Value of a Price Return Index |
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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 |
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Term
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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
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Term
Price Return of Each Constituent Security of an Index |
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Definition
PRi = [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
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Term
Price Return of the Index is calculated as: |
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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 |
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Term
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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
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Term
Total Return of Each Constituent Security of an Index |
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Definition
TRi = [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 |
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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 |
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Term
Calculation of Index Returns Over Multiple Time Periods |
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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 |
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Term
|
Definition
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Term
|
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 |
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Term
|
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 |
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Term
Float-Adjusted Market-Cap Weight of Each Constituent Security: |
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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 |
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Term
|
Definition
wiF = Fi / ΣFj
where:
Fi = A given fundamental size measure of company i |
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|
Term
Return Characteristics of Equity Securities |
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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 |
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Term
Accounting Return on Equity |
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Definition
ROEt = NIt / Average BVEt = NIt / [(BVEt+BVEt-1) / 2]
Net Income / Avg Book value of equity |
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Term
|
Definition
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|
Term
Dividend Discount Model One Year Holding Period |
|
Definition
[Dividend to be recieved + year-end price] / (1 +ke)1 |
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|
Term
Multiple-Year Holding Period DDM |
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Definition
v = [D1 / (1+ke)1] + [D2 / (1+ke)2] + ... + [Pn / (1+ke)n] |
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Term
|
Definition
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|
Term
Long-term constant growth rate |
|
Definition
gc = RR * ROE
**What's RR?? Retention Rate? |
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|
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 |
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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 |
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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)
Dt = 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 |
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Term
|
Definition
Market Price of Share / Cash Flow per Share |
|
|
Term
|
Definition
Market Price per Share / Net Sales per Share
or:
Market value of equity / Total Net Sales |
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|
Term
|
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 |
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Term
|
Definition
Price to CF
Price to Sales
Price to Book |
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|
Term
Enterprise Value Multiples |
|
Definition
|
|
Term
|
Definition
EV = Enterprise value:
MV of common stock
+ MV of outstanding preferred stock
+ MV of Debt
- Cash and cash equivalents |
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Term
|
Definition
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|
Term
|
Definition
Reference rate + Quoted margin |
|
|
Term
Coupon Rate (Inverse Floaters) |
|
Definition
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|
Term
|
Definition
Value of option-free bond - value of embedded call option |
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Term
|
Definition
Value of Option-free bond + value of embedded put option |
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Term
|
Definition
|
|
Term
Inflation-Indexed Treasury Securities |
|
Definition
TIPS Coupon = Inflation-adjusted par value * (Stated coupon rate/2) |
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|
Term
|
Definition
Yield on Bond X - Yield on Bond Y
Bond Y is the reference bond |
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Term
|
Definition
[Yield on Bond X-Yield on Bond Y] / Yield on Bond y
Bond Y is the reference bond |
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Term
|
Definition
Yield on Bond X / Yield on Bond Y |
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Term
|
Definition
Pretax Yield * (1-Marginal Tax Rate) |
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|
Term
|
Definition
Tax Exempt Yield / (1-Marginal Tax Rate) |
|
|
Term
|
Definition
Maturity Value / (1+i)Years til maturity*2
i = semi-annual discount rate |
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|
Term
Valuing a Bond Between Coupon Payments |
|
Definition
w = Days between settlement date and next coupon payment date / days in coupon period
PVt = Expected Cash Flow / (1+i)t-1+w |
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Term
|
Definition
Annual Cash Coupon / Bond Price |
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|
Term
|
Definition
Sum of PV Coupon Payments + Maturity Payment |
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|
Term
Formula to Convert BEY into Annual-Pay YTM |
|
Definition
Annual-Pay Yield = [(1+(BEY/2))2 - 1] |
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|
Term
Formula to Convert Monthly Cash Flow Yield into BEY |
|
Definition
BEY = [(1+monthly CFY)6-1] * 2 |
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|
Term
|
Definition
|
|
Term
|
Definition
OAS + Option cost
OAS = Z-Spread - Option Cost
**Don't know what either of these are |
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|
Term
|
Definition
[V--V+] / [2*V0(Δy)
where:
Δy = change in yield in decimal
V0 = initial price
V- = price if yields decline by Δy
V+ = price if yields increase by Δy |
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Term
|
Definition
Portfolio duration = w1D1 + w2D2 +...+ wNDN
where:
N = Number of bonds in portfolio.
Di = Duration of Bond i.
wi = Market value of Bond i divided by the market value of portfolio |
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Term
Percentage Change in Bond Price |
|
Definition
= duration effect + convexity adjustment
= {[-duration * (Δy)] + [convexity * (Δy)2]} * 100
where: Δy = Change in yields in decimals |
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Term
|
Definition
C = [V++V--2V0] / [2V0(Δy)2] |
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|
Term
Price Balue of a Basis Point |
|
Definition
Duration * .0001 * Bond Value |
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|
Term
Floating Rate Agreement Payoff |
|
Definition
[Floating rate at expiration–FRA rate*(days in floating rate/360)] / [1+[Floating rate at expiration*(days in floating rate/360)] |
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|
Term
Numerator in FRA Payoff formula |
|
Definition
Interest savings on the hypothetical loan
Positive when the floating rate is greater than the forward rate - Long benefits and recieves payment from the short
Negative when the floating rate is lower than the forward rate - Short benefits and expects to receive a payment from the long |
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|
Term
Denominator in FRA Payoff formula |
|
Definition
Discount factor for calculating the present value of the interest savings |
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|
Term
Call Option Holder Payoffs |
|
Definition
Choice to buy underlying asset for X
ST > X - Option holder will exercise; payoff of (ST - X)
ST < X - Option holder does not exercise; payoff of 0 |
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|
Term
Call Option Writer Payofs |
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Definition
obligation to sell underlying asset for X
ST > X - option holder exercises the option, -(ST - X)
ST < X - Option holder oes not exercise, payoff of 0 |
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|
Term
Intrinsic Value of a Call Option |
|
Definition
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|
Term
Put Option Holder Payoffs |
|
Definition
Choice to sell the underlying asset for X
ST < X - holder exercises; payoff of X - ST
ST > X - option holder does not exercise; payoff of 0 |
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|
Term
Put Option Writer Payoffs |
|
Definition
Obligation to buy the underlying asset for X
ST < X - holder exercises; payoff of -(X - ST)
ST > X - Option holder does not exercise; payoff of 0 |
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|
Term
Moneyness of a Put Option |
|
Definition
In the Money: ST < X
At the Money: ST = X
Out of the Money: ST > X |
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|
Term
Intrinsic Value of a Put Option |
|
Definition
ST < X: X - ST
ST = X: 0
ST > X: 0 |
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|
Term
|
Definition
Intrinsic Value + Time Value |
|
|
Term
|
Definition
C0 + [X / (1+RF)T] = P0 + S0 |
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|
Term
Synthetic Derivative Securities |
|
Definition
Fiduciary call
Long call
Long put
Long underlying asset
Long Bond
Protective Put
Synthetic call
Synthetic Put
Synthetic Underlying Asset
Synthetic Bond |
|
|
Term
Fiduciary Call, Consists of & Value |
|
Definition
Consists of: Long call + Long Bond
Value: C0 + [X / (1+RF)T] |
|
|
Term
Fiduciary Call Equals Strategy |
|
Definition
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|
Term
Long Call, Consists of & Value |
|
Definition
Consists of: Long call
Value: C0 |
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|
Term
Long Call Equals Strategy |
|
Definition
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|
Term
Long Put, Consists of & Value |
|
Definition
Consists of: Long Put
Value: P0 |
|
|
Term
|
Definition
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|
Term
Long Underlying Asset, Consists of & Value |
|
Definition
Consists of: Long underlying asset
Value: S0 |
|
|
Term
Long Underlying Asset Equals Strategy |
|
Definition
Synthetic Underlying Asset |
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|
Term
Long Bond, Consists of & Value |
|
Definition
Consists of: Long Bond
Value: X / (1+RF)T |
|
|
Term
Long Bond Equals Strategy |
|
Definition
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|
Term
Protective Put, Consists of & Value |
|
Definition
Consists of: Long put + Long underlying asset
Value: P0 + S0 |
|
|
Term
Protective Put Equals Strategy |
|
Definition
|
|
Term
Synthetic Call, Consists of & Value |
|
Definition
Consists of: long put + long underlying asset + short bond
Value: P0 + S0 - [X / (1+RF)T] |
|
|
Term
Synthetic Call Strategy Equals |
|
Definition
|
|
Term
Synthetic Put, Consists of & Value |
|
Definition
Consists of: Long call + Short underlying asset + Long Bond
Value: C0 - S0 + [X / (1+RF)T] |
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|
Term
Synthetic Put Strategy Equals |
|
Definition
|
|
Term
Synthetic Underlying Asset, Consists of & Value |
|
Definition
Consists Of: Long call + long bond + short put
Value: C0 + [X / (1+RF)T] - P0 |
|
|
Term
Synthetic Underlying Asset Strategy Equals |
|
Definition
|
|
Term
Synthetic Bond, Consists of & Value |
|
Definition
Consists of: Long Put + Long underling Asset + Short Call
Value: P0 + S0 - C0 |
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|
Term
Synthetic Bond Strategy Equals |
|
Definition
|
|
Term
European Call Option Value Limits |
|
Definition
Minimum: ECT ≥ 0
Maximum: ECT ≤ ST |
|
|
Term
American Call Option Value Limits |
|
Definition
Minimum: ACT ≥ 0
Maximum: ACT ≤ ST |
|
|
Term
European Put Option Value Limits |
|
Definition
Minimum: EPT ≥ 0
Maximum: EPT ≤ [X / (1+RFR)T |
|
|
Term
American Put Option Value Limits |
|
Definition
Minimum: APT ≥ 0
Maximum: APT ≤ X |
|
|
Term
European Call Option Value Bounds |
|
Definition
Minimum: Max [0, ST - [X / (1+RFR)T]
Maximum: ST |
|
|
Term
American Call Option Value Bounds |
|
Definition
Minimum: Max [0, ST - [X / (1+RFR)T]
Maximum: ST |
|
|
Term
European Put Option Value Bounds |
|
Definition
Minimum: Max [0, [X / (1+RFR)T] - ST]
Maximum: X / (1+RFR)T |
|
|
Term
American Put Option Value Bounds |
|
Definition
Minimum: Max [0, X - ST]
Maximum: X |
|
|
Term
Interest Rate Call Holder's Payof |
|
Definition
Max (0, Underlying rate at expiration - Exercise Rate) * [(Days in underlying rate*NP) / 360]
where:
NP = Notional Principal |
|
|
Term
Interest Rate Put Holder's Payoff |
|
Definition
Max (0, Exercise rate - Underlying Rate at Expiration) * [(Days in underlying rate*NP) / 360]
where:
NP = Notional Principal |
|
|
Term
Net Payment for a Fixed-Rate-Payer |
|
Definition
(Swap fixed rate - LIBORt-1 ) * (No. of days/360) * (NP)
where:
NP = Notional Principal |
|
|
Term
|
Definition
Value at expiration: VT = ST - max(0, ST- X)
Profit: Π = VT - S0 + C0
Maximum profit = X - S0 + C0
Maximum loss = S0- C0
Breakeven: ST* = S0- C0 |
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|
Term
|
Definition
Value at expiration: VT = ST + max(0,X - ST)
Profit: Π = VT - S0- P0
Maximum profit = ∞
Maximum loss = S0 + P0- X
Breakeven: ST* = S0 + P0 |
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