Chapter 2
Fisher Equation Simplified Fisher Equation
i = nominal (or market) rate of interest
r = real rate of interest i = nominal (or market) rate of interest
ΔPe = expected annualized price-level change r = real rate of interest
rΔPe= adjustment of the interest rate for expected price-level change ΔPe = expected annualized price-level change
Chapter 3
*3.1 Balance sheet Identity: the accounting formula *3.5 Cash Flow invested in net working capital
NWC: Net Working Capital
*3.2 Net Working capital: a measure of a firm’s ability
to meet its short-term obligations as they come due *3.6 Cash Flow Invested in Long-Term Assets
Long-term: more than 1 year
*3.3 Net income is revenues minus expenses
*3.7 CFI: Cash Flow to Investors
*3.4 Cash Flow to Investors from Operating Activity CFOA: Cash Flow to Investors from Operating Activity
EBIT: Earnings before interest and taxes CFNWC: Cash Flow invested in net working capital
CFOA: Cash Flow to Investors from Operating Activity CFLTA: Cash Flow Invested in Long-Term Assets
4 financial statement and annual reports
Balance Sheet
3.1, 3.2
Income statement
Statement of Retained Earnings
Statement of Cash Flows
Interrelations among the Financial Statements:
Chapter 4
EBITDA:Earnings before interest,
taxes, depreciation, and amortization
EBIT: Earnings before
interest and taxes
Chapter 5
5.2: when interest is paid multiple times a period
5.1 M: how Many times a in 1 period
N: Number of periods
I; nominal rate without any compounding
5.3:
e: the exponential value e
i: interest
n: periods
5.4
5.5: TDM is expressed as
percentage
5.6
Lump-Sum Steps
1. Identify “compounding interval” or “period” or “times” per year: If future value is positive, present value is negative (Negative
m cashflow). Because I am giving up money to obtain a higher
a. Look for the word “compounding”. If it is not there, then amount. Other way around if its the opposite.
compounding is annual, hence m=1
b. Otherwise, identify how many periods in a year. This is “m” Basically input all information available, press compute,
2. N=m*n: is the total number of periods. and the calculator will calculate the missing values.
3.I/Y=(Annual Interest Rate)/(Periods per year): periodic interest For time is giving you the total number of periods, you
rate. have to figure out how to change it to the answer’s
k is the annual interest rate. To find the periodic rate, divide k format
by m to find the periodic interest rate.
4. PV is at t=0 or N periods before the FV. (Cash inflows are positive
and outflows are negative)
5. FV is N periods from now, t=0.