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ABFM FORMULA
 CHAPTER 8 (FINANCIAL AND OPERATING LEVERAGES):

Key Point:

 EARNING BEFORE INTEREST & TAX [EBIT]

 EARNING BEFORE TAX [EBT]
 EARNING AFTER TAX [EAT]
 EARNING PER SHARE [EPS]
Formula:
𝐄𝐀𝐓
 EARNING PER SHARE [EPS]=
𝐍𝐨 𝐨𝐟 𝐄𝐪𝐮𝐢𝐭𝐲 𝐒𝐡𝐚𝐫𝐞𝐬

% 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐄𝐁𝐈𝐓
 Degree of Operating Leverage (DOL) =
%𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐒𝐚𝐥𝐞𝐬

 Impact of Fixed Cost:

𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧
DOL =
𝐄𝐁𝐈𝐓

% 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐄𝐏𝐒
Degree of Financial Leverage (DFL) = %𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐄𝐁𝐈𝐓
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 Impact of Interest Cost:
𝐄𝐁𝐈𝐓
DFL= 𝐄𝐁𝐓

 Degree of Combined Leverage (DCL)

OR
Degree of Total Leverage (DTL)
% 𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐄𝐏𝐒
Degree of Combined Leverage (DCL) =
%𝐜𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐒𝐚𝐥𝐞𝐬

 Impact of Interest Cost and Fixed Cost:

𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧
DCL =
𝐄𝐁𝐓

 Break-Even Formula:

𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭
Break- Even Point =
𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝐩𝐞𝐫 𝐔𝐧𝐢𝐭

 CHAPTER 9 (CAPITAL INVESTMENT DECISIONS):

PAY BACK PERIOD FORMULA:

𝐈𝐧𝐢𝐭𝐢𝐚𝐥 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭
Pay Back Period =
𝐀𝐧𝐧𝐮𝐚𝐥 𝐂𝐚𝐬𝐡 𝐈𝐧𝐟𝐥𝐨𝐰
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Key Point:
 Cash Inflow After Tax (CFAT)

 PRESENT VALUE FORMULA:

F= P * (𝟏 + 𝒓)𝐧

 PVF OR PVIF FORMULA:

𝟏
PVF OR PVIF = (𝟏+𝐫)𝒏

Key Point:
if NPV ≥ 0 :- Accept the Proposal
if NPV ≤ 0 :- Reject the Proposal

 NPV FORMULA:

Net Present Value (NPV) =

Present value of net cash inflow - Total net initial investment.
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 Accounting Rate of Return (ARR) FORMULA:

𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐀𝐧𝐧𝐮𝐚𝐥 𝐍𝐞𝐭 𝐄𝐚𝐫𝐧𝐢𝐧𝐠 𝐚𝐟𝐭𝐞𝐫 𝐓𝐚𝐱𝐞𝐬

ARR = × 𝟏𝟎𝟎%
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭

𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐏𝐫𝐨𝐟𝐢𝐭
ARR= × 𝟏𝟎𝟎%
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭

𝐓𝐨𝐭𝐚𝐥 𝐏𝐫𝐨𝐟𝐢𝐭
Average profit made yearly = 𝐍𝐨.𝐨𝐟 𝐘𝐞𝐚𝐫𝐬

Where, Yearly Profit = Profit after Depreciation and Tax

𝐈𝐧𝐢𝐭𝐢𝐚𝐥 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭−𝐒𝐜𝐫𝐚𝐩
Average Investment = + 𝐒𝐜𝐫𝐚𝐩 𝐕𝐚𝐥𝐮𝐞
𝟐

𝐈𝐧𝐢𝐭𝐢𝐚𝐥 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 + 𝐒𝐜𝐫𝐚𝐩 𝐕𝐚𝐥𝐮𝐞

Average Investment =
𝟐

𝐈𝐧𝐢𝐭𝐢𝐚𝐥 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭−𝐒𝐚𝐥𝐯𝐚𝐠𝐞 𝐕𝐚𝐥𝐮𝐞

Average Investment = + 𝐒𝐚𝐥𝐯𝐚𝐠𝐞 𝐕𝐚𝐥𝐮𝐞
𝟐
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Version 1 Annual Basis:

𝐏𝐫𝐨𝐟𝐢𝐭 𝐀𝐟𝐭𝐞𝐫 𝐃𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧

ARR = × 𝟏𝟎𝟎%
𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐢𝐧 𝐭𝐡𝐞 𝐛𝐞𝐠𝐢𝐧𝐧𝐢𝐧𝐠 𝐨𝐟 𝐭𝐡𝐞 𝐲𝐞𝐚𝐫

Version 2 Total Investment Basis:

𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐀𝐧𝐧𝐮𝐚𝐥 𝐏𝐫𝐨𝐟𝐢𝐭

ARR = 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐢𝐧 𝐭𝐡𝐞 𝐛𝐞𝐠𝐢𝐧𝐧𝐢𝐧𝐠 𝐨𝐟 𝐭𝐡𝐞 𝐲𝐞𝐚𝐫 × 𝟏𝟎𝟎%

Version 3 Average Investment Basis:

𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐀𝐧𝐧𝐮𝐚𝐥 𝐏𝐫𝐨𝐟𝐢𝐭

ARR = × 𝟏𝟎𝟎%
𝐀𝐯𝐞𝐫𝐚𝐠𝐞 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭

 Depreciation Formula:

𝐏𝐫𝐢𝐜𝐞 𝐨𝐟 𝐌𝐚𝐜𝐡𝐢𝐧𝐞−𝐒𝐚𝐥𝐯𝐚𝐠𝐞 𝐕𝐚𝐥𝐮𝐞

Deprecation per year=
𝐋𝐢𝐟𝐞 𝐨𝐟 𝐌𝐚𝐜𝐡𝐢𝐧𝐞 (𝐘𝐞𝐚𝐫)

 NPV FORMULA NET CASH FLOW:

𝐂𝟏 𝐂𝟐 𝐂𝟑 𝐂𝟒
NPV = + + + + ⋯ − 𝐂𝟎
(𝟏+𝒓)𝟏 (𝟏+𝒓)𝟐 (𝟏+𝒓)𝟑 (𝟏+𝒓)𝟒
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PROFITABILITY INDEX FORMULA :

𝐒𝐮𝐦 𝐨𝐟 𝐝𝐢𝐬𝐜𝐨𝐮𝐧𝐭𝐞𝐝 𝐜𝐚𝐬𝐡 𝐢𝐧𝐟𝐥𝐨𝐰

Profitability Index (PI)= 𝐈𝐧𝐢𝐭𝐢𝐚𝐥 𝐜𝐚𝐬𝐡 𝐨𝐮𝐭𝐥𝐚𝐲

𝐏𝐕 𝐨𝐟 𝐜𝐚𝐬𝐡 𝐢𝐧𝐟𝐥𝐨𝐰
= 𝐈𝐧𝐭𝐢𝐚𝐥 𝐜𝐚𝐬𝐡 𝐨𝐮𝐭𝐥𝐚𝐲

𝐒𝐮𝐦 𝐨𝐟 𝐝𝐢𝐬𝐜𝐨𝐮𝐧𝐭𝐞𝐝 𝐜𝐚𝐬𝐡 𝐢𝐧𝐟𝐥𝐨𝐰

Profitability Index (PI)= 𝐓𝐨𝐭𝐚𝐥 𝐝𝐢𝐬𝐜𝐨𝐮𝐧𝐭𝐞𝐝 𝐜𝐚𝐬𝐡 𝐨𝐮𝐭𝐟𝐥𝐨𝐰

𝐏𝐕 𝐨𝐟 𝐜𝐚𝐬𝐡 𝐢𝐧𝐟𝐥𝐨𝐰
= 𝐓𝐨𝐭𝐚𝐥 𝐝𝐢𝐬𝐜𝐨𝐮𝐧𝐭𝐞𝐝 𝐜𝐚𝐬𝐡 𝐨𝐮𝐭𝐟𝐥𝐨𝐰

𝐂𝟏 𝐂𝟐 𝐂𝟑 𝐂𝟒
NPV = (𝟏+𝒓)𝟏 + (𝟏+𝒓)𝟐
+ (𝟏+𝒓)𝟑 + (𝟏+𝒓)𝟒
+ ⋯ − 𝐂𝟎

𝐏𝐕 𝐨𝐟 𝐚𝐥𝐥 𝐟𝐮𝐭𝐮𝐫𝐞 𝐜𝐚𝐬𝐡 𝐢𝐧𝐟𝐥𝐨𝐰

PI= 𝐈𝐧𝐢𝐭𝐢𝐚𝐥 𝐜𝐚𝐬𝐡 𝐨𝐮𝐭𝐥𝐚𝐲

𝐂𝟏 𝐂𝟐 𝐂𝟑 𝐂𝟒
+ + + +⋯
(𝟏+𝒓)𝟏 (𝟏+𝒓)𝟐 (𝟏+𝒓)𝟑 (𝟏+𝒓)𝟒
= 𝐂𝟎
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INTERNAL RATE OF RETURN (IRR) FORMULA:

𝟏𝐂 𝐂𝟐 𝐂𝟑 𝐂 𝟒
NPV = (𝟏+𝒓) 𝟏 + (𝟏+𝒓)𝟐
+ (𝟏+𝒓) 𝟑 + (𝟏+𝒓)𝟒
+ ⋯ − 𝐂𝟎

Now NPV = 0 So,

𝐂𝟏 𝐂𝟐 𝐂𝟑 𝐂𝟒
𝐂𝟎 = 𝟏
+ 𝟐
+ 𝟑
+
(𝟏 + 𝒓) (𝟏 + 𝒓) (𝟏 + 𝒓) (𝟏 + 𝒓)𝟒
Or
𝐓
𝐂𝐭
∑ 𝐭
− 𝐂𝟎 = 𝟎
(𝟏 + 𝐈𝐑𝐑)
𝐭=𝟏

Where :
𝐂𝐭 =Net cash inflow during the period t.
𝐂𝟎 = Total initial investment costs.
IRR= The internal rate of return.
T= The number of time periods.
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 MODIFIED INTERNAL RATE OF RETURN(MIRR) FORMULA:

TERNMINAL VALUE(TV):

TV = FV1 + FV2 + FV3

= 𝐏𝐕𝟏 (𝟏 + 𝐫)𝐧𝟏 + 𝐏𝐕𝟐 (𝟏 + 𝐫)𝐧𝟐 + 𝐏𝐕𝟑 (𝟏 + 𝐫)𝐧𝟑

PRESENT VALUE OF COST (PVC) FORMULA :

𝐓𝐕
PVC =
(𝟏+𝐌𝐈𝐑𝐑)𝐧

FACE VALUE AND PRESENT VALUE FORMULA:

FV= PV * (𝟏 + 𝐫)𝐧

𝐅𝐕
PV =
(𝟏+𝐫)𝐧
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CHAPTER 10 (CAPTIAL BUDGETING FOR INTERNATIONAL
PROJECT INVESTMENT DECISIONS):

 CAPITAL ASSET PRICING MODEL (CAPM) FORMULA:

Key Point:

COST OF EQUITY (𝐑 𝒆 ) OR (𝐊 𝒆 )

FORMULA:
COST OF EQUITY (𝐑 𝒆) = 𝐑 𝒇 + βL × (𝐑 𝒎 − 𝐑 𝒇)

Where,
𝐑 𝒇 = risk-free rate
βL= levered beta
𝐑 𝒎 = expected return on the market
𝐑 𝒎 − 𝐑 𝒇 = Market Risk Premium(mrp)

 RISK ADJUSTED DISCOUNT RATE FORMULA:

(𝟏 + 𝐫𝒂 ) = (𝟏 + 𝐫𝒇 ) × (𝟏 + 𝐫𝒑 )

Where,
𝐫𝒂 = is the risk-adjusted discount rate.
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𝐫𝒇 = is the risk-free discount rate and
𝐫𝒑 = is the risk premium

 SPOT RATE FORMULA:

𝒕
(𝟏+𝐫 )
𝐒𝒕 = 𝐒𝟎 × [(𝟏+𝐫𝒉)]
𝒇

Where,
𝐒𝒕 =is the spot rate of US$ at time t
𝐒𝟎 = is the spot rate today.
𝐫𝒉 =is the notional risk-free interest rate in India,
𝐫𝒇 = is the risk-free interest rate in Foreign Country

 NPV FORMULA:

NPV = PV – I

 CHAPTER 12 (DECISION MAKING):

𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭 𝐩.𝐦.
Break-even Point (per month in units) =
𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝐩.𝐮.

Profit per month= {𝐌𝐨𝐧𝐭𝐡𝐥𝐲 𝐝𝐞𝐦𝐚𝐧𝐝 (𝐮𝐧𝐢𝐭𝐬) ×

𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝐩𝐞𝐫 𝐮𝐧𝐢𝐭} − 𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭 𝐩𝐞𝐫 𝐦𝐨𝐧𝐭𝐡
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Break-even Point (per month in units) =
(𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭 𝐩.𝒎.+𝐧𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐬𝐞𝐭𝐮𝐩𝐬 × 𝐜𝐨𝐬𝐭 𝐩𝐞𝐫 𝐬𝐞𝐭𝐮𝒑)
𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝐩.𝐮.

Profit per month = {𝐌𝐨𝐧𝐭𝐡𝐥𝐲 𝐝𝐞𝐦𝐚𝐧𝐝 (𝐮𝐧𝐢𝐭𝐬) ×

𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧 𝐩𝐞𝐫 𝐮𝐧𝐢𝐭} − 𝐅𝐢𝐱𝐞𝐝 𝐂𝐨𝐬𝐭 𝐩𝐞𝐫 𝐦𝐨𝐧𝐭𝐡 +
𝐬𝐞𝐭𝐮𝐩 𝐜𝐨𝐬𝐭 𝐩𝐞𝐫 𝐦𝐨𝐧𝐭𝐡

 COST DRIVER FORMULA:

𝐓𝐨𝐭𝐚𝐥 𝐜𝐨𝐬𝐭 𝐨𝐟 𝐚𝐜𝐭𝐢𝐯𝐢𝐭𝐲

Activity cost driver rate =
𝐀𝐜𝐭𝐢𝐯𝐢𝐭𝐲 𝐝𝐫𝐢𝐯𝐞𝐫

 OVERHEAD RATE FORMULA:

𝐓𝐨𝐭𝐚𝐥 𝐜𝐨𝐬𝐭 𝐢𝐧 𝐭𝐡𝐞 𝐚𝐜𝐭𝐢𝐯𝐢𝐭𝐲 𝐩𝐨𝐨𝐥

𝐁𝐚𝐬𝐞

 CHAPTER 13 (CORPORATE VALUATION):

 WEIGHTED AVERAGE COST OF CAPITAL FORMULA:

WACC = 𝐰𝐝 𝐫𝐝 + 𝐰𝐩 𝐫𝐩 + 𝐰𝐞 𝐫𝐞
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 POST-TAX AVERAGE COST OF ADDITIONAL BEDT
FORMULA:

(𝟏−𝐓𝐜 )
CD= Total Interest ×
𝐓𝐨𝐭𝐚𝐥 𝐃𝐞𝐛𝐭

 COST OF EQUITY FORMULA:

𝐏𝐚𝐲𝐨𝐮𝐭
𝐂𝐄 = 𝐄𝐏𝐒 × +G
𝐌𝐏

 COST OF RETAINED EARNINGS FORMULA:

𝐂𝐑 = 𝐂𝐄 (𝟏 − 𝐓𝐏 )
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 CHAPTER 14 (DISCOUNTED CASH FLOW
VALUATION):

CONSTANT GROWTH MODEL FORMULA:

𝐃𝟏 𝐃𝟏 (𝟏 + 𝐠) 𝐃𝟏 (𝟏 + 𝐠)𝐧
𝐏𝟎 = + +⋯ +⋯
(𝟏 + 𝐫) (𝟏 + 𝐫)𝟐 (𝟏 + 𝐫)𝐧+𝟏

Where,
𝐏𝟎 = Is the current fair price of the share or intrinsic
value of share.
𝐃𝟏 = is the expected dividend one year from now
𝐫 = is the rate of return required by the investor.
𝐧= represents any particular year and can be any
number between 0 and infinity.

SUM OF GEOMETRIC PROGRESSION OF THIS

FORMULA:

𝐃𝟏
𝐏𝟎 =
(𝐫 − 𝐠)
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ZERO GROWTH MODEL FORMULA:

𝐃
𝐏𝟎 =
𝐫

TWO STAGE MODEL FORMULA:

𝐃𝟏 𝐃𝟏 (𝟏 + 𝐠 𝟏 ) 𝐃𝟏 (𝟏 + 𝐠 𝟏 )𝟐 𝐃𝟏 (𝟏 + 𝐠 𝟏 )𝐧−𝟏 𝐏𝒏
𝐏𝟎 = + + … + +
(𝟏 + 𝐫) (𝟏 + 𝐫)𝟐 (𝟏 + 𝐫)𝟑 (𝟏 + 𝐫)𝐧 (𝟏 + 𝐫)𝐧

Where,
𝐏𝟎 = is the present price of the equity share.
𝐠 𝟏 = is the extraordinary growth rate that is valid for
n years
𝐏 = is the price of the equity share at the end of
year n

𝟏 + 𝐠𝟏 𝐧
𝟏−( ) 𝐏𝒏
𝐏𝟎 = 𝐃𝟏 ( 𝟏 + 𝐫 )+
𝐫 − 𝐠𝟏 (𝟏 + 𝐫)𝐧
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Two-stage growth model assumes that the growth rate after n
years remains constant, 𝐏𝐧 will be equal to:

𝐃𝐧+𝟏
𝐏𝐧 =
𝐫−𝐠 𝟐

Where 𝐃𝐧+𝟏 the dividend is for year n+ 1 and g₂ is the

growth rate in the second period

𝐃𝐧+𝟏 The dividend for year n+1 may be expressed in terms

of the dividend in the first stage.

𝐃𝐧+𝟏 = 𝐃𝟏 (𝟏 + 𝐠 𝟏 )𝐧−𝟏 (𝟏 + 𝐠 𝟐 )

Substituting the above expression, we get

𝟏 + 𝐠𝟏 𝐧
𝟏−( ) 𝐧−𝟏
𝐏𝟎 = 𝐃𝟏 ( 𝟏 + 𝐫 ) + (𝐃𝟏 (𝟏 + 𝐠 𝟏 ) (𝟏 + 𝐠𝟐 )
)(
𝟏
)
𝐫 − 𝐠𝟏 𝐫 − 𝐠𝟐 (𝟏 + 𝐫)𝐧

H MODEL FORMULA:

𝐃𝟎 [(𝟏 + 𝐠 𝒏 ) + 𝐇 (𝐠 𝐚 − 𝐠 𝐧 )]
𝐏𝟎 =
𝐫 − 𝐠𝐧
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where r is the rate of return needed by investors,
𝐏𝟎 is the intrinsic value of each share,
𝐃𝟎 is the current dividend per share,
𝐠 𝐧 is the expected long-term growth rate (n is normal
growth rate),
𝐠 𝐚 is the current growth rate ( a is abnormal growth rate),
and
H is the one half of duration during which 𝐠 𝐚 levels out to
𝐠𝐧.

𝐃𝟎 (𝟏 + 𝐠 𝒏 ) 𝐃𝟎 𝐇 (𝐠 𝒂 − 𝐠 𝒏 )
𝐏𝟎 = +
𝐫 − 𝐠𝐧 𝐫 − 𝐠𝐧

NORMAL GRWOTH RATE FORMULA:

𝐃𝟎 (𝟏 + 𝐠 𝒏 )
𝐫 − 𝐠𝐧

SECOND TERM ANOMALOUS GROWTH RATE FORMULA:

𝐃𝟎 𝐇 (𝐠 𝒂 − 𝐠 𝒏 )
𝐫 − 𝐠𝐧
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CHAPTER 15 (OTHER NON-DCF VALUATION MODELS):

FORMULA:

EBITDA Basis:

𝐄𝐕
𝐄𝐁𝐈𝐓𝐃𝐀

Book Value Basis:

𝐄𝐕
𝐁𝐨𝐨𝐤 𝐕𝐚𝐥𝐮𝐞

Seles Basis:

𝐄𝐕
𝐒𝐚𝐥𝐞𝐬 𝐕𝐚𝐥𝐮𝐞

P/E Multiple:

𝐌𝐚𝐫𝐤𝐞𝐭 𝐩𝐫𝐢𝐜𝐞 𝐩𝐞𝐫 𝐬𝐡𝐚𝐫𝐞

P/E multiple=
𝐄𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐩𝐞𝐫 𝐬𝐡𝐚𝐫𝐞
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Price-earnings multiple

𝐏𝟎
𝐄𝟏

Fundamental Determinants of the P/E Multiple:

𝐏𝟎 (𝟏−𝐛)
=
𝐄𝟏 𝒓−𝐑𝐎𝐄∗𝐛

Where (1-b) is the dividend payout ratio, r is the cost of

equity, ROE is the return on equity, and b is the plough
back ratio or retention ratio.

g= b * ROE
𝐏𝟎 (𝟏−𝐛)
=
𝐄𝟏 𝒓−𝐠

P/B Multiple:

(𝐒𝐡𝐚𝐫𝐞𝐡𝐨𝐥𝐝𝐞𝐫𝐬 𝐟𝐮𝐧𝐝𝒔−𝐏𝐫𝐞𝐟𝐞𝐫𝐞𝐧𝐜𝐞 𝐜𝐚𝐩𝐢𝐭𝐚𝒍 )

The book value per share (B) =
𝐍𝐮𝐦𝐛𝐞𝐫 𝐨𝐟 𝐨𝐮𝐭𝐬𝐭𝐚𝐧𝐝𝐢𝐧𝐠 𝐞𝐪𝐮𝐢𝐭𝐲 𝐬𝐡𝐚𝐫𝒔

𝐏𝟎 𝑹𝑶𝑬 (𝟏−𝐛)
=
𝐁𝟎 𝒓−𝐠
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Basic P/S Determinants:

𝐏𝟎 𝐍𝐏𝐌 (𝟏+𝐠)(𝟏−𝐛)
=
𝐒𝟎 𝒓−𝐠

EV to EBITDA Multiple:

𝐄𝐧𝐭𝐞𝐫𝐩𝐫𝐢𝐬𝐞 𝐯𝐚𝐥𝐮𝐞 (𝐄𝐕)

𝐄𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐛𝐞𝐟𝐨𝐫𝐞 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭, 𝐓𝐚𝐱𝐞𝐬, 𝐃𝐞𝐩𝐫𝐞𝐜𝐢𝐚𝐭𝐢𝐨𝐧, 𝐚𝐧𝐝 𝐀𝐦𝐨𝐫𝐭𝐢𝐳𝐚𝐭𝐢𝐨𝒏

𝐄𝑽 (𝐑𝐎𝐈𝐂 − 𝐠) × (𝟏 − 𝐃𝐀) × (𝟏 − 𝐭)
=
𝐄𝐁𝐈𝐓𝐃𝐀 𝐑𝐎𝐈𝐂 × (𝐖𝐀𝐂𝐂 − 𝐠)

EV/EBIT Multiple:

𝐄𝐧𝐭𝐞𝐫𝐩𝐫𝐢𝐬𝐞 𝐯𝐚𝐥𝐮𝐞 (𝐄𝐕)

𝐄𝐚𝐫𝐧𝐢𝐧𝐠𝐬 𝐛𝐞𝐟𝐨𝐫𝐞 𝐈𝐧𝐭𝐞𝐫𝐞𝐬𝐭, 𝐓𝐚𝐱𝐞𝐬, (𝐄𝐁𝐈𝐓)

𝐄𝐕𝟎 (𝟏 − 𝐭) × (𝟏 − 𝐫𝐞𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐫𝐚𝐭𝐞)

=
𝐄𝐁𝐈𝐓𝟏 (𝐖𝐀𝐂𝐂 − 𝐠)
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EV/FCFF Multiple:

𝐄𝐧𝐭𝐞𝐫𝐩𝐫𝐢𝐬𝐞 𝐯𝐚𝐥𝐮𝐞 (𝐄𝐕)

𝐅𝐫𝐞𝐞 𝐜𝐚𝐬𝐡 𝐟𝐥𝐨𝐰 𝐭𝐨 𝐟𝐢𝐫𝐦(𝐅𝐂𝐅𝐅)

𝐄𝐕𝟎 𝟏
=
𝐅𝐂𝐅𝐅𝟏 (𝐖𝐀𝐂𝐂 − 𝐠)

EV/BV Multiple:

𝐄𝐧𝐭𝐞𝐫𝐩𝐫𝐢𝐬𝐞 𝐯𝐚𝐥𝐮𝐞 (𝐄𝐕)

𝐁𝐨𝐨𝐤 𝐯𝐚𝐥𝐮𝐞 𝐨𝐟 𝐚𝐬𝐬𝐞𝐭𝐬 (𝐁𝐕)

𝐄𝑽 (𝐑𝐎𝐈𝐂 − 𝐠)
=
𝐁𝐕 (𝐖𝐀𝐂𝐂 − 𝐠)

EV/Sales Multiple:

𝐄𝐧𝐭𝐞𝐫𝐩𝐫𝐢𝐬𝐞 𝐯𝐚𝐥𝐮𝐞 (𝐄𝐕)

𝐒𝐚𝐥𝐞𝐬(𝐒)

𝐄𝑽 [𝐀𝐟𝐭𝐞𝐫 𝐭𝐚𝐱 𝐨𝐩𝐞𝐫𝐚𝐭𝐢𝐧𝐠 𝐦𝐚𝐫𝐠𝐢𝐧 (𝟏 + 𝐠) × (𝟏 − 𝐫𝐞𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐫𝐚𝐭𝐞)]

=
𝐁𝐕 (𝐖𝐀𝐂𝐂 − 𝐠)