Finance Formulas

Compound Interest Formula

Reference for A = P(1 + r/n)^(nt) compound interest formula. Covers annual, monthly, and daily compounding, the Rule of 72, and frequency comparison tables.

Altman Z-Score

The Altman Z-Score predicts the probability of a company going bankrupt within 2 years using five financial ratios. Includes formula and worked examples.

CAGR Formula (Compound Annual Growth Rate)

The CAGR formula calculates the steady annual growth rate of an investment or metric over multiple years. Learn the formula with examples.

Current Ratio Formula (Liquidity)

The current ratio formula measures a company's ability to pay short-term debts. Learn what the ratio means and how to interpret it.

DuPont Analysis

DuPont analysis: ROE = Net Profit Margin x Asset Turnover x Equity Multiplier. Decompose return on equity into three driving components.

Jensen's Alpha

Jensen's alpha: alpha = Rp - [Rf + beta(Rm - Rf)]. Measure a portfolio's excess return above the CAPM prediction for its level of market risk.

Loan-to-Value (LTV) Ratio Formula

The LTV ratio formula compares your loan amount to the property value. Learn how LTV affects mortgage approval, PMI, and interest rates.

Price-to-Earnings (P/E) Ratio Formula

The P/E ratio formula measures how much investors pay per dollar of earnings. Learn trailing vs. forward P/E with examples.

Treynor Ratio

Calculate the Treynor ratio: T = (Rp - Rf) / beta. Measure risk-adjusted return using systematic risk instead of total volatility.

Bond Yield Formulas

Reference for bond yield formulas: current yield, approximate YTM, and yield to call. Covers duration and the price-yield inverse relationship.

Gordon Growth Model

Value a stock using the Gordon Growth Model: P = D1/(r-g). Calculate fair stock price from dividends, required return, and growth rate.

Sharpe Ratio

Calculate the Sharpe ratio S = (Rp-Rf)/sigma to measure risk-adjusted returns. Compare portfolios, funds, and strategies on a level performance playing field.

Weighted Average Cost of Capital (WACC)

Reference for the WACC formula: blended cost of equity and debt weighted by capital structure. Essential for DCF valuation and capital budgeting decisions.

Annuity Formula

Reference for PV = PMT × (1-(1+r)^-n)/r and FV = PMT × ((1+r)^n-1)/r. Covers ordinary and due annuities for loans, pensions, and retirement planning.

APR Formula (Annual Percentage Rate)

The APR formula calculates the true annual cost of borrowing including interest and fees. Used to compare loans, credit cards, and mortgages on a level basis.

APY Formula (Annual Percentage Yield)

Reference for APY = (1 + r/n)^n - 1. Calculates annual yield from nominal rate and compounding frequency — daily, monthly, or quarterly — for savings and CDs.

Black-Scholes Formula

Reference for the Black-Scholes formula for European options. Covers d1, d2, N(d) calculations, Greeks (delta, gamma, theta, vega), and model assumptions.

Mortgage Payment Formula

Reference for mortgage formula M = P[r(1+r)^n]/[(1+r)^n-1]. Covers amortization, total interest paid, and a 30-year vs 15-year fixed mortgage comparison.

Amortization Formula

Amortization formula PMT = P[r(1+r)^n] / [(1+r)^n-1] for mortgages and installment loans. Returns monthly payment, total interest, and amortization schedule.

CAPM Formula

Reference for the CAPM formula: E(R) = Rf + beta*(Rm - Rf). Calculates expected return from risk-free rate, beta, and market premium for stock valuation.

Dividend Yield Formula

Reference for the dividend yield formula: Annual Dividend / Stock Price x 100. Calculate income return and compare yield across dividend-paying investments.

Internal Rate of Return (IRR)

Reference for IRR — the discount rate where NPV equals zero. Explains iterative solving, comparison with WACC, and examples for capital budgeting.

Net Present Value (NPV) Formula

Reference for Net Present Value: sum of discounted cash flows minus initial investment. The gold standard formula for comparing investment decisions.

Break-Even Point Formula

Calculate the break-even point with BEP = Fixed Costs / (Price - Variable Cost). Find how many units you need to sell to cover all costs.

Compound Interest Formula

Calculate compound interest with the formula A = P(1 + r/n)^(nt). Learn how your money grows over time with interest compounding.

Debt-to-Income Ratio Formula

Calculate your debt-to-income ratio with DTI = (Monthly Debt / Monthly Income) × 100. Understand your financial health for loan approvals.

Future Value Formula

Reference for future value formulas FV = PV(1+r)^n for lump sums and FV = PMT[(1+r)^n-1]/r for annuities. Covers compounding frequency and the Rule of 72.

Present Value Formula

Calculate present value using PV = FV / (1+r)^n. Determine what any future sum of money is worth today given a discount rate and number of time periods.

Price Elasticity of Demand Formula

Calculate price elasticity of demand with PED = (% Change in Quantity) / (% Change in Price). Measure how sensitive demand is to price changes.

Profit Margin Formula

Calculate profit margin with (Revenue - Cost) / Revenue × 100. Understand how much profit your business keeps from each dollar of sales.

Return on Investment (ROI) Formula

Calculate ROI using (Net Profit / Cost) × 100. Compare investment efficiency for stocks, real estate, ad spend, and business projects with annualized return.

Rule of 72 Formula

Use the Rule of 72 to estimate how long it takes to double your money. Years to Double = 72 / Interest Rate. A quick mental math shortcut for investors.

Simple Interest Formula

Calculate simple interest with the formula I = Prt. Learn how basic interest works on loans and investments without compounding.