Level I CFA® Program Formulas

FINANCIAL REPORTING
• Solvency Ratios
Ratio Numerator Denominator
AND ANALYSIS Debt-to-assets ratio Total debt Total assets
Total debt + total
Debt-to-capital ratio Total debt
shareholders’ equity
• Basic EPS:
(Net income – Preferred dividends) Total shareholders’
= _____________________________________________
Weighted average number of shares outstanding (WASO)
Debt-to-equity ratio Total debt
equity
Financial leverage
• Calculation of Diluted EPS: Average total assets Average total equity
ratio
Security Formula Interest coverage EBIT Interest payments
Net income
__________________________________ Fixed charge EBIT + Lease Interest payments +
Convertible WASO + New common shares that would coverage payments Lease payments
preferred shares have been issued at conversion

Net income – Preferred dividends + interest • Profitability Ratios

(1 – Tax rate)
__________________________________
Convertible debt Ratio Numerator Denominator
WASO + New common shares that would
have been issued at conversion Gross profit margin Gross profit Revenue
Operating profit
Stock options and Net income – Preferred dividends
__________________________________ Operating income Revenue
margin
warrants WASO + Net increase in common shares
Pre-tax margin Earnings before tax Revenue
• FCFF = NI + NCC + Int(1 – Tax rate) – FCInv – WCInv Net profit margin Net income Revenue
• FCFF = CFO + Int(1 – Tax rate) – FCInv Operating ROA Operating income Average total assets
• FCFE = CFO – FCInv + Net borrowing
• Activity Ratios ROA Net income Average total assets
Return on total Short- and long-term
Ratio Numerator Denominator EBIT
capital debt + Equity
Inventory turnover Cost of goods sold Average inventory ROE Net income Average total equity
Days of inventory Return on common Net income – Average common
365 Inventory turnover
on hand (DOH) equity Preferred dividends equity
Receivables
Revenue Average receivables • Extended Dupont Decomposition of ROE
turnover

EAT EBT EBIT Revenue Assets

Days of sales
365 Receivables turnover ROE = ____ × _____ × ________ × ________ × ______
outstanding (DSO) EBT EBIT Revenue Assets Equity
Payables turnover Purchases Average trade payables
Number of days of Net profit margin
365 Payables turnover
payables
Working capital Average working
Revenue ROE = Tax burden × Interest burden × EBIT margin × Asset
turnover capital
Turnover × Leverage
Fixed asset Average net fixed
Revenue
turnover assets
• Valuation Ratios
Total asset turnover Revenue Average total assets
Ratio Numerator Denominator
• Liquidity Ratios Price to earnings Price per share Earnings per share
Ratio Numerator Denominator Price to cash flow Price per share Cash flow per share
Current ratio Current assets Current liabilities Price to sales Price per share Sales per share
Cash + Short-term Price to book value Price per share Book value per share
Quick ratio marketable investments + Current liabilities
Receivables

Cash + Short-term
Cash ratio
marketable investments
Current liabilities
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ALTERNATIVE INVESTMENTS

Defensive
Cash + Short-term
Daily cash
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marketable investments +
interval ratio expenditures
Receivables • Commodity futures price = Spot price (1 + Risk free rate) +
Cash conversion Storage costs – Convenience yield
cycle (net DOH + DSO – Number of days of payables
• Contango: Futures price > Spot price
operating cycle) Fitch Learning is a member of the CFA Institute
• Backwardation:
Approved Prep Provider Futures
Program. price < Spot price

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