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  /Title (financial-management.pdf)
  /Creator (Cheatography)
  /Author (lpoole)
  /Subject (Financial Management Cheat Sheet)
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\noindent
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    {\parbox{\dimexpr\textwidth-2\fboxsep\relax}{\noindent
        \hspace*{-6pt}\includegraphics[width=5.8cm]{/web/www.cheatography.com/public/images/cheatography_logo.pdf}}
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    \vspace{-2pt}\large{\bf{\textcolor{DarkBackground}{\textrm{Financial Management Cheat Sheet}}}} \\
    \normalsize{by \textcolor{DarkBackground}{lpoole} via \textcolor{DarkBackground}{\uline{cheatography.com/38805/cs/15203/}}}
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  \mymulticolumn{2}{p{5.377cm}}{\bf\textcolor{white}{Cheatographer}}  \\
  \vspace{-2pt}lpoole \\
  \uline{cheatography.com/lpoole} \\
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  \mymulticolumn{1}{p{5.377cm}}{\bf\textcolor{white}{Cheat Sheet}}  \\
   \vspace{-2pt}Not Yet Published.\\
   Updated 23rd March, 2018.\\
   Page {\thepage} of \pageref{LastPage}.
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  \mymulticolumn{1}{p{5.377cm}}{\bf\textcolor{white}{Sponsor}}  \\
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  \vspace{-5pt}
  %\includegraphics[width=48px,height=48px]{dave.jpeg}
  Measure your website readability!\\
  www.readability-score.com
\end{tabulary}
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\begin{multicols*}{3}

\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{8 Rules}}  \tn
% Row 0
\SetRowColor{LightBackground}
\mymulticolumn{1}{x{5.377cm}}{1. Do not double count (interest is included in the hurdle rate)} \tn 
% Row Count 2 (+ 2)
% Row 1
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{2. Use incremental cash flows, not accounting income (depreciation, interest expense) after tax} \tn 
% Row Count 4 (+ 2)
% Row 2
\SetRowColor{LightBackground}
\mymulticolumn{1}{x{5.377cm}}{3. Include incremental working capital costs (current assets - current liabilities)} \tn 
% Row Count 6 (+ 2)
% Row 3
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{4. Include side effects - positive or negative} \tn 
% Row Count 7 (+ 1)
% Row 4
\SetRowColor{LightBackground}
\mymulticolumn{1}{x{5.377cm}}{5. Exclude overheads - only include incremental cash flows} \tn 
% Row Count 9 (+ 2)
% Row 5
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{6. Include opportunity costs - salvage value, land use etc.} \tn 
% Row Count 11 (+ 2)
% Row 6
\SetRowColor{LightBackground}
\mymulticolumn{1}{x{5.377cm}}{7. Ignore sunk costs - costs incurred regardless} \tn 
% Row Count 12 (+ 1)
% Row 7
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{8. Inflation is important - (1 + nominal rate) = (1 + real rate) x (1 + inflation rate)} \tn 
% Row Count 14 (+ 2)
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
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\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{The role of financial manager}}  \tn
% Row 0
\SetRowColor{LightBackground}
\mymulticolumn{1}{x{5.377cm}}{Valuation and pricing of assets} \tn 
% Row Count 1 (+ 1)
% Row 1
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{Evaluation of investment proposals} \tn 
% Row Count 2 (+ 1)
% Row 2
\SetRowColor{LightBackground}
\mymulticolumn{1}{x{5.377cm}}{Corporate financial policy} \tn 
% Row Count 3 (+ 1)
% Row 3
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{Investment decisions} \tn 
% Row Count 4 (+ 1)
% Row 4
\SetRowColor{LightBackground}
\mymulticolumn{1}{x{5.377cm}}{Finance decisions} \tn 
% Row Count 5 (+ 1)
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\mymulticolumn{1}{x{5.377cm}}{Payout and manage cash flows} \tn 
% Row Count 6 (+ 1)
% Row 6
\SetRowColor{LightBackground}
\mymulticolumn{1}{x{5.377cm}}{OVERRIDING GOAL to maximise shareholder wealth} \tn 
% Row Count 7 (+ 1)
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
\par\addvspace{1.3em}

\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{Capital budgeting \& Investment Decisions}}  \tn
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{4 methods - Payback, AAR,  IRR and NPV \newline % Row Count 1 (+ 1)
-  Payback period approach. \newline % Row Count 2 (+ 1)
Payback = outgoings - CFAT (number of periods) \newline % Row Count 3 (+ 1)
\textasciicircum{}No time value of \$, no decisions based in economics, ignores CF after payback period, will not choose projects to max. share holder value\textasciicircum{} \newline % Row Count 6 (+ 3)
- Accounting rate of return (AAR) \newline % Row Count 7 (+ 1)
AAR = Average Income / Average invested capital \newline % Row Count 8 (+ 1)
1. Estimate average income after tax for project \newline % Row Count 9 (+ 1)
2. Estimate net investment after depreciation \newline % Row Count 10 (+ 1)
3. Calc ARR \newline % Row Count 11 (+ 1)
4. If ARR \textgreater{} targeted return = accept project \newline % Row Count 12 (+ 1)
\textasciicircum{}Limitations of ARR - components reflect tax and accounting figures, not market values and cash flows, time value of \$ and no guidance on target AAR\textasciicircum{} \newline % Row Count 15 (+ 3)
- NPV technique. \newline % Row Count 16 (+ 1)
- IRR = rate of return where NPV = 0 \newline % Row Count 17 (+ 1)
i.e IRR of project outlaying \$100 returning \$106 in 1 year when opp cost of capital is 7\% =  \newline % Row Count 19 (+ 2)
0 = -100 + 106/(1 + IRR) \newline % Row Count 20 (+ 1)
100 = 106 / (1 + IRR) = 6\%% Row Count 21 (+ 1)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
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\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{Capital budgeting \& Investment Decisions}}  \tn
% Row 0
\SetRowColor{LightBackground}
\mymulticolumn{1}{x{5.377cm}}{Payback period approach.} \tn 
% Row Count 1 (+ 1)
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
\par\addvspace{1.3em}

\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{Payout Policy}}  \tn
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{What company decided to do with free cash flows; \newline % Row Count 1 (+ 1)
- reinvest/accumulate in reserves \newline % Row Count 2 (+ 1)
-payout in dividends or share repurchase \newline % Row Count 3 (+ 1)
     - also dividend reinvestment \newline % Row Count 4 (+ 1)
Miller \& Modigliani irrelvance proposition.  Dividend policy does not effect shareholder wealth (trade off higher dividends for fall in share price) \newline % Row Count 7 (+ 3)
- Increase dividend \newline % Row Count 8 (+ 1)
- Pay no dividend \newline % Row Count 9 (+ 1)
- Home-made dividend (sell shares) \newline % Row Count 10 (+ 1)
Dividend smoothing - practice of maintaining relatively constant dividend and maintaining long term target levels of dividends.% Row Count 13 (+ 3)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
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\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{Cash Flows}}  \tn
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{{\bf{Present Value of an irregular cash flow}} \newline % Row Count 1 (+ 1)
PV=  CF/(1+r)\textasciicircum{}n\textasciicircum{}   \newline % Row Count 2 (+ 1)
{\bf{Future value of an irregular cash flow}} \newline % Row Count 3 (+ 1)
FV= CF x (1+r)\textasciicircum{}n\textasciicircum{}  \newline % Row Count 4 (+ 1)
{\bf{Present value of Annuities \textasciicircum{}(also use for EAA - replace CF with EAA)\textasciicircum{}}} \newline % Row Count 6 (+ 2)
PV=CF (1-(1+r)\textasciicircum{}-n\textasciicircum{})/r) \newline % Row Count 7 (+ 1)
{\bf{Future value of annuities}} \newline % Row Count 8 (+ 1)
FV=CF((1+r)\textasciicircum{}n\textasciicircum{}-1)/r) \newline % Row Count 9 (+ 1)
{\bf{Present Value of perpetuity}} \newline % Row Count 10 (+ 1)
PV = CF/r \newline % Row Count 11 (+ 1)
{\bf{Present Value of growing perpetuity}}  \newline % Row Count 12 (+ 1)
PV = d`1` / r`e`-g \newline % Row Count 13 (+ 1)
{\bf{Present Value of growing annuity}} \newline % Row Count 14 (+ 1)
PV= C ×  1/(r-g)  (1-((1+g)/(1+r))\textasciicircum{}n\textasciicircum{} \newline % Row Count 15 (+ 1)
{\bf{Determining "n" whenPV and FV is known}} \newline % Row Count 16 (+ 1)
.% Row Count 17 (+ 1)
} \tn 
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\end{tabularx}
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\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{What decision is it?}}  \tn
% Row 0
\SetRowColor{LightBackground}
\mymulticolumn{1}{x{5.377cm}}{} \tn 
% Row Count 0 (+ 0)
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\SetRowColor{LightBackground}
\mymulticolumn{1}{x{5.377cm}}{Financing \newline Investment \newline Payout}  \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
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\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{Risk and interest rate}}  \tn
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{Discount rate, Hurdle rate, Opportunity cost of capital \& required rate or return% Row Count 2 (+ 2)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
\par\addvspace{1.3em}

\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{Compound Interest}}  \tn
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{Financial mathematics required consistency between numerator and denominator.  If cashflow occurs monthly, need a monthly hurdle rate or cashflows annual and rate monthly provided need to convert to annual. \newline % Row Count 5 (+ 5)
1.5\% per quarter to yearly = (1 + r)\textasciicircum{}4\textasciicircum{} = (1.015)\textasciicircum{}4\textasciicircum{} = 6.136\% Effective annual. \newline % Row Count 7 (+ 2)
10.5\% PA comp daily to yearly = (1 + 0.105/365) = (1 + y) \newline % Row Count 9 (+ 2)
(1 + 0.105/3650\textasciicircum{}365\textasciicircum{} = 11.07\% \newline % Row Count 10 (+ 1)
Continuous compounding; \newline % Row Count 11 (+ 1)
FV = PV e\textasciicircum{}rt\textasciicircum{} \newline % Row Count 12 (+ 1)
r = continuously compounded rate of return \newline % Row Count 13 (+ 1)
e = 2.718282 \newline % Row Count 14 (+ 1)
T = compounding periods.% Row Count 15 (+ 1)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
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\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{Risk \& Return}}  \tn
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{β is a measure of how a firm correlates to the market. \newline % Row Count 2 (+ 2)
The higher the firm's debt, the more variable is its price and hence its β \newline % Row Count 4 (+ 2)
Always assume given β is levered \newline % Row Count 5 (+ 1)
If projects or leverage changes then we must adjust β \newline % Row Count 7 (+ 2)
β = 1 (market) \newline % Row Count 8 (+ 1)
β \textless{} 1 (risk of security is lower than average market) \newline % Row Count 10 (+ 2)
β \textgreater{} 1 (risk of security is higher than average market risk) \newline % Row Count 12 (+ 2)
If β is 0 there is no risk (government bond) \newline % Row Count 13 (+ 1)
CAPM   r`e` = r`f` + β (r`m` - r`f`)   OR   r`f` + (β X ERP) \newline % Row Count 15 (+ 2)
Suppose RF is 5\% and market risk premium is 7\%. \newline % Row Count 16 (+ 1)
Qantas has β of 1.33 \newline % Row Count 17 (+ 1)
According to CAPM what is expected return? \newline % Row Count 18 (+ 1)
r`f` + β (e`m` - r`f`) = 0.05 + 1.33 (0.07) = 14.31\% \newline % Row Count 20 (+ 2)
Therefore because qantas β of 1.33 investors will require a risk premium os 9.31\% over RF rate. \newline % Row Count 22 (+ 2)
Unleveling B. \newline % Row Count 23 (+ 1)
B`u` =  B`L`   /   (1+ (1-t)((MV Debt)/(MV Equity))) \newline % Row Count 25 (+ 2)
T is tax rate, B`L` is the observable levered β of equity (also known as project risk of a firm) \newline % Row Count 27 (+ 2)
To reliever with new D/E ratio B`L` = B`u` (1 + (1-T) x (new D/new E)% Row Count 29 (+ 2)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
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\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{Company cost of capital}}  \tn
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{WACC  \newline % Row Count 1 (+ 1)
 - When should you use - if scale enhancing, when D/E remains unchanged. \newline % Row Count 3 (+ 2)
E = Market value of equity (current share price x no. shares) \newline % Row Count 5 (+ 2)
D = Market value of debt \newline % Row Count 6 (+ 1)
 - Yield on similar risky debt (calc like bond) \newline % Row Count 7 (+ 1)
r`e` =  cost of equity (CAPM) \newline % Row Count 8 (+ 1)
r`d` =  Cost of debt (market yield) \newline % Row Count 9 (+ 1)
 - Yield is after tax to reflect the tac shield provided to shareholders, not bond holders \newline % Row Count 11 (+ 2)
WACC = r`A` = (r`d` (1 - T) x (d/v) + (r`e` x E/V)) \newline % Row Count 13 (+ 2)
`Modify WAA \textgreater{} need new re \textgreater{} B changes \textgreater{} new WACC`% Row Count 14 (+ 1)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
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\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{Annuities}}  \tn
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{Equal in size, equal in space and it ends. \newline % Row Count 1 (+ 1)
\$500 placed into an account each year earning 5\% PA comp annually. How much in 5 years? \newline % Row Count 3 (+ 2)
FV = 500 ( (1.05)\textasciicircum{}5\textasciicircum{} - 1) / 0.05) = \$2763 \newline % Row Count 4 (+ 1)
What is value of asset paying \$2.3m each year  from 1 to 6 with 10\% PA (comp monthly)? \newline % Row Count 6 (+ 2)
(1 + 0.1/12)\textasciicircum{}12\textasciicircum{} = 10.47\% \newline % Row Count 7 (+ 1)
PV = 2.3 ( 1 - (1.1047)\textasciicircum{}-6\textasciicircum{}) / 0.1047) = \$9.88% Row Count 8 (+ 1)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
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\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{Perpetuities}}  \tn
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{PV of perpetuity = A / r \newline % Row Count 1 (+ 1)
i.e BHP paid half yearly divided of \$0.58, share market expected to return 10\% PA comp 6 monthly, what is value of BHP? \newline % Row Count 4 (+ 3)
PV = A / r = 0.58 / 0.05 = \$11.60 \newline % Row Count 5 (+ 1)
0.05 because 10\% divided into 6 months (and dividend paid 6 monthly also). \newline % Row Count 7 (+ 2)
Annuity starting end of year 1 to 8; \newline % Row Count 8 (+ 1)
PV = 100 ( 1 - (1.10)\textasciicircum{}-8\textasciicircum{} / 0.10) = \$533.4 \newline % Row Count 9 (+ 1)
Annuity starting straight away (0 to 7) \newline % Row Count 10 (+ 1)
PV = 95 ( 1 - (1.10)\textasciicircum{}-7\textasciicircum{} / 0.10) +95 = 557.9 \newline % Row Count 11 (+ 1)
Deferred annuity, i.e 1.49 CF @ 10\% beginning in year 3. \newline % Row Count 13 (+ 2)
PV = 1.49 ( ( 1 - ( 1+0.10 )\textasciicircum{}3\textasciicircum{} / 0.10 ) + (1.10)\textasciicircum{}2\textasciicircum{}  \newline % Row Count 15 (+ 2)
To bring forward to yr 0 we need to discount it at 10\% 2 times/periods.% Row Count 17 (+ 2)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
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\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{NPV tender price}}  \tn
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{Supply contract.  5 years and require supply of 1000 units at end of each year. Equip cost \$20m, annual operating expenses of \$7m. Straight line depreciation to zero and salvage value of \$5m.  40\% tax rate and required return is 10\% after tax.  What price would you bid? \newline % Row Count 6 (+ 6)
0 = -20 + cash (1-(1.10)\textasciicircum{}-5\textasciicircum{} / 0.10) + 3/(1.10)\textasciicircum{}5\textasciicircum{}  \newline % Row Count 8 (+ 2)
{\bf{3 is salvage value of machine (5) less tax}} \newline % Row Count 9 (+ 1)
Cash = 4.785. \newline % Row Count 10 (+ 1)
Rev        12.308 \newline % Row Count 11 (+ 1)
Exp        7 \newline % Row Count 12 (+ 1)
Dep\_\_   4 \newline % Row Count 13 (+ 1)
PBT       1.308 \newline % Row Count 14 (+ 1)
Tax\_\_     \newline % Row Count 15 (+ 1)
PAT       0.785 \newline % Row Count 16 (+ 1)
Dep\_\_   4 \newline % Row Count 17 (+ 1)
Cash     4.785% Row Count 18 (+ 1)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
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\begin{tabularx}{5.377cm}{X}
\SetRowColor{DarkBackground}
\mymulticolumn{1}{x{5.377cm}}{\bf\textcolor{white}{Business Valuation}}  \tn
\SetRowColor{white}
\mymulticolumn{1}{x{5.377cm}}{Value of a firm = debt + equity \textasciitilde{} V = D + E \newline % Row Count 1 (+ 1)
PV of debt; \newline % Row Count 2 (+ 1)
What is MV of 10\% debentures redeemable in 10 years at face value of \$1, \newline % Row Count 4 (+ 2)
when similar securities are yielding 5\%? \newline % Row Count 5 (+ 1)
FV x Coupon \textasciitilde{} 1m * 0.10 = \$100 \newline % Row Count 6 (+ 1)
PV`bond` = 100 (1 - (1.05)\textasciicircum{}-10\textasciicircum{} / 0.05) + (1m / (1.05)\textasciicircum{}10\textasciicircum{}) \newline % Row Count 8 (+ 2)
=\$1,386,087.    \newline % Row Count 9 (+ 1)
Cost of purchase is \$1m and we get back \$1.3 so we BUY \newline % Row Count 11 (+ 2)
PV of equity = share price x no. of shares \newline % Row Count 12 (+ 1)
PE Ratio (P/E = payout ratio / r`e`-g)) \newline % Row Count 13 (+ 1)
EPS is it a good indicator. Price  = EPS x P/E% Row Count 14 (+ 1)
} \tn 
\hhline{>{\arrayrulecolor{DarkBackground}}-}
\end{tabularx}
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% That's all folks
\end{multicols*}

\end{document}