FINANCE

FORMULAS
HANDBOOK
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TABLE OF CONTENTS
1) Top 10 Valuation Formulas

2) Top 10 Investment Ratios

3) Top 10 Profitability Formulas

4) Top 10 Liquidity & Solvency Formulas

5) Top 10 Efficiency Formulas

6) Top 10 Cash Flow Formulas

TOP 10 VALUATION FORMULAS FMWC
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1. PRICE-TO-EARNINGS (P/E) RATIO 2. PRICE-TO-BOOK (P/B) RATIO

Measures how much investors are willing to pay per PURPOSE

Evaluates if a stock is over- or undervalued based on
PURPOSE
dollar of earnings. its book value.

3. ENTERPRISE VALUE (EV) 4. EV/EBITDA RATIO

Represents the total value of a company, factoring Assesses a company’s profitability and is often used in
PURPOSE PURPOSE
in both debt and equity. merger and acquisition valuations.

5. EARNINGS PER SHARE (EPS) 6. WEIGHTED AVERAGE COST OF CAPITAL (WACC)

Measures the profitability of a company on a per-share basis, Represents a firm's overall cost of capital, weighting the costs of
PURPOSE showing how much profit is attributed to each outstanding share PURPOSE
equity and debt by their proportions in the firm’s capital structure.
of common stock.

7. DISCOUNTED CASH FLOW (DCF) 8. CAPITAL ASSET PRICING MODEL (CAPM)

Estimates the value of an investment based on its

PURPOSE
expected future cash flows.
PURPOSE Determines the expected return on an asset given its risk.

9. DIVIDEND YIELD 10. RETURN ON EQUITY (ROE)

Measures the income generated by a stock relative to its Indicates how effectively management is using a
PURPOSE PURPOSE
price, helping investors assess the return from dividends. company’s assets to create profits.
TOP 10 INVESTMENT RATIOS FMWC
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1. PRICE-TO-EARNINGS (P/E) RATIO 2. PRICE-TO-BOOK (P/B) RATIO

Shows how much investors are willing to pay per dollar of earnings; Compares a company’s market value to its book value, helping
PURPOSE PURPOSE
higher values can indicate expectations of future growth. investors assess if a stock is undervalued or overvalued.

3. DIVIDEND YIELD 4. RETURN ON EQUITY (ROE)

PURPOSE
Indicates the return on investment from dividends PURPOSE
Measures how effectively a company generates profits from
alone, commonly used by income-focused investors. shareholders' equity, indicating management’s efficiency.

5. EARNINGS PER SHARE (EPS) 6. DEBT-TO-EQUITY (D/E) RATIO

PURPOSE
Shows the portion of a company’s profit allocated to each PURPOSE
Assesses a company’s financial leverage, indicating how
outstanding share, a key indicator of profitability. much debt is used to finance assets compared to equity.

7. CURRENT RATIO 8. PRICE-TO-SALES (P/S) RATIO

Measures a company’s ability to pay off its short-term Reflects how much investors are willing to pay per dollar of
PURPOSE PURPOSE
obligations with its short-term assets, indicating liquidity. revenue, useful for evaluating companies with little or no earnings.

9. CASH FLOW PER SHARE 10. PEG RATIO (PRICE/EARNINGS TO GROWTH)

PURPOSE
Evaluates a company’s ability to generate cash, which is PURPOSE
Adjusts the P/E ratio by considering a company’s growth
essential for sustainability and future investments. rate, providing a more complete valuation metric.
TOP 10 PROFITABILITY FORMULAS FMWC
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1. GROSS PROFIT MARGIN 2. OPERATING PROFIT MARGIN

Measures how efficiently a company produces Evaluates how profitable the company is from
PURPOSE PURPOSE
goods compared to the cost of production. its core operations.

3. NET PROFIT MARGIN 4. EBITDA MARGIN

PURPOSE
Shows how much of each dollar earned PURPOSE
Provides a view of operating profitability before
translates into net profit. non-cash and financing costs.

5. RETURN ON ASSETS (ROA) 6. RETURN ON EQUITY (ROE)

Indicates how efficiently a company uses its Measures how much profit a company generates
PURPOSE PURPOSE
assets to generate profit. from its shareholders’ investment.

7. RETURN ON CAPITAL EMPLOYED (ROCE) 8. CASH RETURN ON ASSETS

Evaluates how effectively capital is being used to Highlights asset efficiency in generating actual
PURPOSE PURPOSE
generate returns. cash, not just accounting profits.

9. CONTRIBUTION MARGIN 10. BREAK-EVEN POINT

Reveals how much revenue remains to cover Calculates the minimum number of units that
PURPOSE PURPOSE
fixed costs after covering variable expenses. must be sold to cover all costs.
TOP 10 LIQUIDITY & SOLVENCY FORMULAS FMWC
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1. CURRENT RATIO 2. QUICK RATIO

Measures a company’s short-term ability to pay Assesses liquidity by excluding inventory, which
PURPOSE PURPOSE
off its obligations. may not be easily converted into cash.

3. CASH RATIO 4. WORKING CAPITAL

PURPOSE
Shows the company’s ability to pay short-term PURPOSE
Indicates the liquidity buffer available for
liabilities with cash on hand. day-to-day operations.

5. OPERATING CASH FLOW RATIO 6. NET DEBT

Measures if operating cash flow can cover Shows the real debt burden after subtracting
PURPOSE PURPOSE
short-term debts. cash available.

7. DEBT-TO-EQUITY RATIO 8. DEBT RATIO

Evaluates the level of financial leverage and Reveals what percentage of assets are financed
PURPOSE PURPOSE
capital structure balance. by liabilities.

9. INTEREST COVERAGE RATIO 10. EQUITY RATIO

Shows how easily a company can meet its Indicates the proportion of assets financed
PURPOSE PURPOSE
interest obligations. through equity rather than debt.
TOP 10 EFFICIENCY FORMULAS FMWC
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1. INVENTORY TURNOVER 2. RECEIVABLES TURNOVER

Shows how efficiently inventory is managed Measures how effectively a company collects
PURPOSE PURPOSE
and sold. its receivables.

3. DAYS SALES OUTSTANDING (DSO) 4. ACCOUNTS PAYABLE TURNOVER

PURPOSE
Indicates the average number of days to collect PURPOSE
Assesses how quickly a company pays off
payment after a sale. its suppliers.

5. DAYS PAYABLE OUTSTANDING (DPO) 6. ASSET TURNOVER

Shows the average number of days it takes to Indicates how efficiently a company uses assets
PURPOSE PURPOSE
pay suppliers. to generate sales.

7. FIXED ASSET TURNOVER 8. WORKING CAPITAL TURNOVER

Focuses on how well fixed assets (like Evaluates how efficiently working capital
PURPOSE PURPOSE
equipment) are utilized. supports sales generation.

9. CASH CONVERSION CYCLE (CCC) 10. OPERATING CYCLE

PURPOSE
Combines receivables, inventory, and payables PURPOSE
Shows the total time from purchasing inventory
efficiency into one metric. to collecting cash from customers.
TOP 10 CASH FLOW FORMULAS FMWC
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1. FREE CASH FLOW (FCF) 2. OPERATING CASH FLOW (OCF)

Measures how much cash a company generates after maintaining or Evaluates the cash generated from core operations, highlighting how well
PURPOSE expanding its asset base-key for assessing available funds for dividends, PURPOSE the business can sustain itself without external financing.
debt, or reinvestment.

3. CASH FLOW MARGIN 4. CASH CONVERSION RATIO

Indicates how much operating cash is generated from each Shows the quality of earnings by comparing net income to actual
PURPOSE PURPOSE
dollar of revenue useful for profitability and efficiency analysis. cash flow values below 1 can indicate aggressive accounting.

5. CASH RETURN ON ASSETS (CASH ROA) 6. CFO TO CURRENT LIABILITIES

Measures how efficiently a company converts assets into Assesses short-term liquidity and a company’s ability to cover its
PURPOSE cash-valuable for comparing operational performance across PURPOSE
obligations using cash from operations.
companies.

7. NET CASH FLOW 8. CASH FLOW PER SHARE

Represents overall cash movement-positive values indicate Measures the actual cash-generating power per share-an
PURPOSE growth capacity, while negative values may signal liquidity PURPOSE alternative to earnings per share for evaluating shareholder value.
concerns.

9. FCF TO FIRM (FCFF) 10. FCF TO EQUITY (FCFE)

Indicates the cash available to all capital providers (debt and Shows the cash available to equity shareholders after expenses,
PURPOSE PURPOSE
equity)—widely used in company valuation models. reinvestment, and debt repayment.