3.6. Review of Selected Formulas

net income = sales – COGS – operational expenses – interest expense – taxes

EBIT = sales – COGS – operational expenses

assets = liabilities + shareholders’ equity

working capital = current assets – current liabilities

net debt = short-term debt + long-term debt – cash and cash equivalents

EBIT = operating income + non-operating income

EBIT = net income + interest expense + taxes

EBITDA = EBIT + depreciation and amortization

market capitalization = market price per share × shares outstanding

equity value = market price per common share × fully diluted shares outstanding

EV = equity value + market value of preferred shares + net debt + non-controlling interests

after-tax cost of debt = pre-tax cost of debt × (1 – tax rate)

WACC = (after-tax cost of debt × % of debt) + (cost of equity × % of equity)

cost of equity = risk-free rate of return + (beta × market risk premium)

future value = principal × (1 + r)t