Equity ValuationValuationL1
Gordon Growth Model
Value a stock that pays dividends growing at a constant rate forever.
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Showing 143 of 143 formulas · 138 locked in preview
Value a stock that pays dividends growing at a constant rate forever.
Total return on an asset held for one period, including dividends.
Future value of a single amount compounded at rate r for n periods.
Discount a future cash flow back to its value today.
Convert a stated APR with m compounding periods into the actual annual yield.
Required return on a security given its systematic risk relative to the market.
Blended after-tax cost of financing for a company.
Maximum sustainable growth in dividends and earnings without external financing.
Price a fixed-coupon bond as the present value of coupons + face value.
Excess return per unit of total (standard-deviation) risk.
Short-term liquidity: ability to cover one year of obligations from current assets.
Stricter short-term liquidity test that excludes inventory.
Expected number of successes in n independent Bernoulli trials.
Spread of outcomes for n Bernoulli trials with success probability p.
Probability of a value falling within a sub-interval of a uniformly distributed range [a, b].
Standardise an observation by expressing it in standard-deviation units from the mean.
Convert a holding-period return into its continuously compounded equivalent.
Precision of the sample mean when the population standard deviation σ is known.
Precision of the sample mean when σ is replaced by the sample standard deviation s.
Range around the sample mean that contains the population mean with confidence (1 − α).
Simple average of n observations.
Average of two values weighted by importance (e.g. portfolio return).
Compound average return — the constant rate that reproduces ending wealth over N periods.
Average ratio — used for cost-averaging and average P/E across multiple periods.
Total compounded return across consecutive sub-periods.
Compound annual portfolio return that strips out the timing/size of investor cash flows.
Convert a per-period return into its annual equivalent assuming compounding.
Value of a stream of equal payments received forever.
Present value of N equal end-of-period payments.
Future value of N equal end-of-period payments.
Present value of N equal payments at the START of each period (e.g. lease).
Future value of N equal beginning-of-period payments.
Maximum-compounding limit — used when interest is credited continuously.
Equal periodic payment that fully amortises a loan over N periods.
Value a share that pays a fixed dividend forever (no growth).
Per-period return implied by a zero-coupon-like cash flow with known PV, FV, N.
Required return implied by a Gordon-growth-priced equity.
Long-run dividend growth implied by current price and required return.
Average absolute distance of observations from the mean — a robust dispersion measure.
Unbiased estimate of population variance from a sample.
Risk per unit of return — lower is better when comparing investments.
Downside-risk measure — only counts observations below a target B.
Standardised linear-association measure between two variables (between −1 and +1).
Convert “a to b” odds in favour into a probability.
Probability of A given B has occurred.
Joint probability of two events using a conditional.
Probability that A, B, or both occur.
Update the probability of an event given new information.
Weighted-average return for a two-asset portfolio.
Risk of a two-asset portfolio accounting for correlation between assets.
Higher SF ratio = lower probability of falling below a threshold return.
Test a hypothesised population mean when σ is unknown and the sample is from a normal population.
Test a hypothesised mean when the population standard deviation σ is known.
Test whether the population variance equals a hypothesised value.
Test whether two independent samples have equal population variances.
Test whether the population correlation is significantly different from zero.
Fraction of total variation in Y explained by the regression line.
Average distance of observations from the regression line.
Test joint significance of the regression — is the slope coefficient(s) different from zero?
Responsiveness of quantity demanded to a change in own price.
Responsiveness of demand to a change in consumer income — classifies goods.
Substitutes (positive) vs complements (negative) signalling.
Broadest measure of price level — converts nominal to real GDP.
Money supply × velocity equals nominal GDP — Fischer’s equation of exchange.
Cost of labour to produce one unit of output — leading inflation indicator.
Maximum factor by which the banking system can expand the money supply.
Income multiplier from government spending when taxes are not considered.
Income multiplier when income taxes leak some of each round of spending.
Nominal interest rate equals real rate plus expected inflation.
Compares purchasing power across countries adjusted for price levels.
Covered interest-parity forward exchange rate.
Risk-adjusted utility — investor picks the portfolio maximising U.
Excess return per unit of SYSTEMATIC (beta) risk.
Excess return above CAPM — manager skill measure.
Risk-adjusted portfolio return rescaled to the market’s volatility — directly comparable to Rm.
Systematic risk of an asset relative to the market.
Days between paying suppliers and collecting from customers — working-capital efficiency.
Annualised cost of forgoing a trade discount (e.g. “2/10 net 30”).
Value created by a project after discounting cash flows at the required return.
Profitability of capital deployed in the business — compare to WACC.
Value of a levered firm equals unlevered value plus tax shield on debt.
Cost of equity rises with leverage — slope dampened by tax shield.
Optimal leverage balances the tax shield against the present value of financial distress costs.
Earnings attributable to each common share — the most common per-share profit measure.
Strictest liquidity test — only the most liquid assets in the numerator.
Financial leverage — every $1 of equity supports D/E of debt.
Fraction of assets financed by debt.
Equity multiplier — the third leg of DuPont decomposition of ROE.
Cash available to ALL providers of capital (debt + equity) after reinvestment.
Alternative FCFF computation starting from cash flow from operations.
Cash available to common shareholders after debt service and reinvestment.
Average tax rate the company pays — combines federal, state, deferred.
How many times inventory is sold and replaced per year.
Average days a unit sits in inventory before being sold.
Frequency of receivables collection per year.
Average collection period — days to convert sales into cash.
How often the company pays its suppliers per year.
Revenue generated per dollar of assets — efficiency.
How many times EBIT covers interest — solvency indicator.
Profitability at the product-line level.
Profitability before financing and taxes — captures operational efficiency.
Bottom-line profitability — also drives the DuPont decomposition.
Profit generated per dollar of assets — capital efficiency.
Profit per dollar of equity — central to dividend-discount valuation.
Breaks ROE into profitability × efficiency × leverage.
Fully decomposes ROE into tax burden, interest burden, EBIT margin, asset turnover, and leverage.
Most-used relative-value multiple — price per dollar of earnings.
Price relative to net assets per share — popular for banks and asset-heavy firms.
Fraction of earnings paid out to shareholders — complement of retention rate.
Equal depreciation each year of the asset’s useful life.
Accelerated depreciation — twice the straight-line rate applied to declining book value.
How much position size 1 dollar of equity buys when using initial margin.
Price at which a long margin position triggers a margin call.
Sensitivity of operating income to a 1 % change in unit sales.
Sensitivity of net income to a 1 % change in operating income.
Total earnings sensitivity to a 1 % change in unit sales.
Sales units where net income equals zero.
Units where operating income (EBIT) equals zero — excludes financing costs.
Capital-structure-neutral multiple — useful when comparing firms with different leverage.
Coupon of a floating-rate note (FRN) — resets each period with the reference rate.
Coupon falls as rates rise — opposite of a regular floater.
Bond with embedded call is worth less than an otherwise identical straight bond.
Bond with embedded put option is worth more — bondholder benefit.
Simple yield measure — ignores capital gains/losses to maturity.
Approximate percent price change of a bond for a 1 % change in yield.
Dollar price change for a 1.00 (100 %) change in yield.
Dollar price impact of a 1 bp parallel yield shift on a bond.
Expected dollar (or %) loss given a probability of default and loss-given-default.
Decompose corporate yield into its risk-premium components.
Estimate percent price change for a spread shift using duration and convexity.
Compares interest-rate risk to investor horizon — zero gap = immunised.
Profit/loss at expiry for the long side of a forward contract.
Profit to the long call holder at expiry, net of premium paid.
Profit to the long put holder at expiry, net of premium.
Cost-of-carry forward price for an asset with no income or holding costs.
Continuous-compounding cost-of-carry forward price.
Covered interest-rate parity for currency forwards (discrete).
Quoted futures price for a short-term interest rate (e.g. SOFR future).
Pseudo-probability of an up move used in risk-neutral option pricing.
Discounted risk-neutral expected payoff of a call option.
Number of shares per option needed to delta-hedge in a 1-period binomial model.
Arbitrage relationship linking European call and put prices to spot and a zero bond.
Put-call parity expressed in terms of the forward price F₀(T) instead of spot.