CB1 formula sheet

S.MONK · CB1 formula sheet · 24 formulae · smonk.in/formula-sheet/cb1

Share capital and loan capital: why each source costs what it does

k_e = D₁ / P₀ + g

k_p = fixed dividend / market price

k_d (gross) = interest / market price
k_d (after tax) = k_d (gross) × (1 − t)

Return on capital employed, and the two things that drive it

ROCE = operating profit ÷ capital employed

ROCE = (operating profit ÷ revenue) × (revenue ÷ capital employed)

Gearing: why borrowing magnifies a shareholder return in both directions

ROE = ROCE + (D ÷ E) × (ROCE − i)

Modigliani-Miller: why gearing does not create value, and what does

V_geared = V_ungeared

k_e = k_u + (k_u − k_d) × D/E

WACC = k_u, at every level of gearing

V_geared = V_ungeared + tD

The cost of capital, and why a project must beat the whole pot

WACC = (E ÷ V) × k_e + (D ÷ V) × k_d(1 − t)

Working capital: the days between paying out and being paid

inventory days = inventory ÷ cost of sales × 365

receivable days = trade receivables ÷ revenue × 365

payable days = trade payables ÷ cost of sales (or purchases) × 365

cash operating cycle = inventory days + receivable days − payable days

Valuing a company: discounted cash flow against comparable multiples

enterprise value = ∑ FCFF_t / (1 + WACC)^t

terminal value at time n = FCFF_n+1 / (WACC − g)

equity value = enterprise value − net debt

P/E ratio = 1 / (k_e − g)

Synergies and the takeover premium: who actually gets the gain

gain to the acquirer = synergy − premium

maximum price = target's standalone value + the whole synergy

Interest rate swaps: fixing a floating cost, and where the saving comes from

floating loan + (pay fixed, receive floating) = fixed cost

total gain = (gap in the fixed market) − (gap in the floating market)

Hedging currency risk: the forward contract and the money-market hedge

F = S × (1 + r_home) / (1 + r_foreign)

Free from S.MONK School of Actuaries · smonk.in · every formula here is explained, with a worked example, on the page it links to.