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MBA Formula Sheet Template (Finance, Accounting, Operations, Stats)

50 MBA core formulas in KaTeX: ratios, CVP, TVM, NPV/IRR, CAPM, WACC, DCF, M&M, Black-Scholes, elasticity, CLV, EOQ, newsvendor, queues, regression

MBA y escuelas de negociosCompletaGeneral finance, economics, operations and statistics formulas; original works cited (Sharpe 1964, Modigliani and Miller 1958/1963, Black and Scholes 1973, Little 1961, Harris 1913)formulasheetmath

Cómo usar: Use it when you prepare for or revise the MBA core and want one place for every formula with its Excel function. Fill the conventions table and your course notation column first, then recompute each mini example before looking. The main pitfall is convention errors: Excel NPV timing, rate per period, nominal versus real.

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MBA Formula Sheet: [Programme, course or exam]

A one-document reference for the formulas of the MBA core: financial and managerial accounting, time value of money, capital budgeting, risk and the cost of capital, valuation, options, microeconomics and international finance, marketing metrics, operations and statistics. Every formula has an ID, KaTeX notation, a notation table, the matching Excel function or formula, a computed mini example and a note on the most common mistake. It is for admitted students preparing for the core, students revising for exams and graduates who want one place to look things up. Each formula was checked against two independent sources (the originating work or a standard textbook, plus a second textbook or official documentation), listed in the verification register in section 13. Source basis: the original papers named in each section (Sharpe 1964, Lintner 1965, Modigliani and Miller 1958 and 1963, Black and Scholes 1973, Merton 1973, Stoll 1969, Harris 1913, Arrow, Harris and Marschak 1951, Little 1961, Gupta, Lehmann and Stuart 2004 and others) and standard MBA textbooks named as further reading; all wording, notation choices and examples are original. Replace every [bracketed] value and every row marked Example. The companies are fictional: Northfield Outdoor Co., Corvane Robotics and Tallow Creek Medical Center.

Document control

FieldValue
Document ID[MBA-FS-001]
Programme or course[Core year, term 1 / Corporate Finance / final exam]
Learner[Your name]
Exam rules on notes and tools[One A4 sheet both sides, Excel allowed / closed book, financial calculator]
Excel version used for checks[Microsoft 365 / Excel 2021]
Reviewed by[Study group member or tutor]
Last updatedYYYY-MM-DD
Version[0.1]

Contents

  1. Conventions and notation
  2. Financial accounting and ratios
  3. Managerial accounting and break-even
  4. Time value of money
  5. Capital budgeting
  6. Risk, return and the cost of capital
  7. Valuation
  8. Options
  9. Economics and international finance
  10. Marketing metrics
  11. Operations
  12. Statistics and regression
  13. Verification register
  14. Choosing the right formula
  15. Self-test

1. Conventions and notation

ConventionRule used on this sheetWatch out
Timingt=0t = 0 is today; cash flows arrive at the end of each period unless statedAn annuity due (payments at the start) is worth (1+r)(1 + r) times the ordinary annuity
Ratesrr is the rate per period; an annual rate with mm compounding periods per year gives r=APR/mr = \text{APR}/mNever mix an annual rate with monthly periods
Nominal and realDiscount nominal cash flows at nominal rates, real cash flows at real ratesMixing them is the most common valuation error
PercentagesFormulas use decimals (8%=0.088\% = 0.08)Percentage points versus percent change (see mba/pre-mba-quant-refresher)
Excel signsPV, FV, PMT follow a cash-flow sign convention: money paid out is negative=PMT(0.005,120,150000) returns a negative payment
Excel NPVDiscounts the first value by one full periodAdd CF0CF_0 outside the function: =NPV(r, CF1:CFn) + CF0
Excel IRRNeeds at least one sign change; returns one rootSeveral sign changes can give several IRRs
UnitsExamples state the currency unit (USD k, USD m)Keep the unit in every cell label
Logsln⁡\ln is the natural log (LN), log⁡10\log_{10} is LOG10Excel LOG(x) defaults to base 10

Throughout, N(⋅)N(\cdot) is the standard normal cumulative distribution function (NORM.S.DIST(x, TRUE)) and N−1(⋅)N^{-1}(\cdot) its inverse (NORM.S.INV(p)).

2. Financial accounting and ratios

F-01 Accounting equation. Assets=Liabilities+Equity\text{Assets} = \text{Liabilities} + \text{Equity}. Every transaction keeps both sides equal (double entry, formalised by Pacioli in 1494).

F-02 DuPont decomposition of return on equity (developed in practice at the DuPont company in the early twentieth century):

ROE=NIE=NISales⏟net margin×SalesA⏟asset turnover×AE⏟equity multiplier\text{ROE} = \frac{NI}{E} = \underbrace{\frac{NI}{\text{Sales}}}_{\text{net margin}} \times \underbrace{\frac{\text{Sales}}{A}}_{\text{asset turnover}} \times \underbrace{\frac{A}{E}}_{\text{equity multiplier}}

F-03 Return on assets. ROA=NI/A\text{ROA} = NI / A. Some courses use EBIT(1−t)/AEBIT(1 - t)/A to remove the effect of financing; state which one you use.

F-04 Liquidity. Current ratio=CA/CL\text{Current ratio} = CA / CL; Quick ratio=(CA−Inventory)/CL\text{Quick ratio} = (CA - \text{Inventory}) / CL.

F-05 Working capital days and the cash conversion cycle.

DSO=ARSales×365,DIO=InvCOGS×365,DPO=APCOGS×365,CCC=DSO+DIO−DPODSO = \frac{AR}{\text{Sales}} \times 365, \quad DIO = \frac{\text{Inv}}{COGS} \times 365, \quad DPO = \frac{AP}{COGS} \times 365, \quad CCC = DSO + DIO - DPO

F-06 Solvency. Interest coverage=EBIT/Interest expense\text{Interest coverage} = EBIT / \text{Interest expense}; Debt-to-equity=D/E\text{Debt-to-equity} = D / E.

SymbolMeaning
NININet income (profit after tax)
AA, EE, DDTotal assets, shareholders' equity, interest-bearing debt
CACA, CLCLCurrent assets, current liabilities
ARAR, APAP, InvAccounts receivable, accounts payable, inventory
COGSCOGSCost of goods sold
EBITEBITEarnings before interest and taxes (operating profit)

Mini example (Example, Northfield Outdoor Co., USD m). Sales 820, COGS 492, EBIT 82, interest 9, tax rate 25%, so pre-tax profit 73 and net income 54.75. Assets 640, equity 300, debt 180, current assets 210 (of which inventory 120), current liabilities 140, receivables 25, payables 60.

IDResultExcel (inputs in named cells)
F-02Net margin 6.68%, asset turnover 1.2812, equity multiplier 2.1333, ROE 18.25%=NI/Sales*Sales/Assets*Assets/Equity
F-03ROA 8.55%=NI/Assets
F-04Current ratio 1.50, quick ratio 0.64=(CA-Inv)/CL
F-05DSO 11.13, DIO 89.02, DPO 44.51, CCC 55.64 days=AR/Sales*365+Inv/COGS*365-AP/COGS*365
F-06Interest coverage 9.11x, debt-to-equity 0.60=EBIT/Interest

Read it: Northfield's ROE comes mostly from turnover and leverage, not margin; inventory days (89) dominate the cash cycle, which is typical for a seasonal outdoor retailer. As of October 2026, IFRS 18 (replacing IAS 1) applies to annual reporting periods beginning on or after 1 January 2027 and requires an operating profit subtotal in the statement of profit or loss; operating profit under IFRS 18 is not always equal to the EBIT your course uses, so check its definition (mba/mba-three-statements-card) and the standard on https://www.ifrs.org before you rely on it.

3. Managerial accounting and break-even

F-07 Contribution margin. CM=P−VCM = P - V per unit; CMR=(P−V)/PCMR = (P - V)/P.

F-08 Break-even and target profit.

QBE=FP−V,SBE=FCMR,Qtarget=F+πtargetP−VQ_{BE} = \frac{F}{P - V}, \qquad S_{BE} = \frac{F}{CMR}, \qquad Q_{\text{target}} = \frac{F + \pi_{\text{target}}}{P - V}

F-09 Margin of safety and operating leverage.

MoS=Q−QBEQ,DOL=Q(P−V)Q(P−V)−F=%ΔEBIT%ΔSalesMoS = \frac{Q - Q_{BE}}{Q}, \qquad DOL = \frac{Q(P - V)}{Q(P - V) - F} = \frac{\%\Delta EBIT}{\%\Delta \text{Sales}}
SymbolMeaning
PP, VVPrice and variable cost per unit
FFFixed costs for the period
QQUnits sold
π\piOperating profit

Mini example (Example, Northfield tent line). P=250P = 250, V=150V = 150, F=USD 1,200,000F = \text{USD }1{,}200{,}000, planned volume 16,000 units.

IDResultExcel
F-07CM 100 per unit, CMR 40%=(P-V)/P
F-08Break-even 12,000 units or USD 3.0m sales; 15,000 units for USD 300,000 profit=F/(P-V), =(F+300000)/(P-V)
F-09Profit at 16,000 units USD 400,000; MoS 25%; DOL 4.0=Q*(P-V)/(Q*(P-V)-F)

A DOL of 4.0 means a 10% fall in volume cuts operating profit by about 40% at this volume.

4. Time value of money

F-10 Future and present value of a single sum. FV=PV(1+r)nFV = PV(1 + r)^n; PV=FV/(1+r)nPV = FV/(1 + r)^n.

F-11 Effective annual rate. EAR=(1+APR/m)m−1EAR = (1 + \text{APR}/m)^m - 1; with continuous compounding EAR=eAPR−1EAR = e^{\text{APR}} - 1 and FV=PV erTFV = PV\,e^{rT}.

F-12 Ordinary annuity (equal payment CC at the end of each of nn periods):

PV=Cr[1−1(1+r)n],FV=Cr[(1+r)n−1]PV = \frac{C}{r}\left[1 - \frac{1}{(1 + r)^n}\right], \qquad FV = \frac{C}{r}\left[(1 + r)^n - 1\right]

F-13 Growing annuity (first payment C1C_1 at t=1t = 1, growth gg, r≠gr \neq g):

PV=C1r−g[1−(1+g1+r)n]PV = \frac{C_1}{r - g}\left[1 - \left(\frac{1 + g}{1 + r}\right)^n\right]

F-14 Perpetuity and growing perpetuity. PV=C/rPV = C/r; PV=C1/(r−g)PV = C_1/(r - g) for r>gr > g.

F-15 Loan payment. C=PV⋅r1−(1+r)−nC = PV \cdot \dfrac{r}{1 - (1 + r)^{-n}}.

SymbolMeaning
PVPV, FVFVPresent value, future value
rr, nnRate per period, number of periods
APR, mmQuoted annual rate, compounding periods per year
CC, C1C_1, ggLevel payment, first payment, growth rate per period

Mini examples (Example).

IDInputsResultExcel
F-1010,000 for 5 years at 6%FV 13,382.26=FV(0.06,5,0,-10000)
F-1050,000 received in 4 years at 8%PV 36,751.49=PV(0.08,4,0,-50000)
F-1112% APR, monthlyEAR 12.6825%=EFFECT(0.12,12)
F-111,000 for 3 years at 5% continuousFV 1,161.83=1000*EXP(0.05*3)
F-125,000 a year for 10 years at 7%PV 35,117.91, FV 69,082.24=PV(0.07,10,-5000), =FV(0.07,10,-5000)
F-13C1C_1 = 5,000, gg = 3%, rr = 7%, 10 yearsPV 39,602.63=5000/(0.07-0.03)*(1-(1.03/1.07)^10)
F-142,000 a year at 5%; or 2,000 growing 3% at 8%40,000 in both cases=2000/0.05, =2000/(0.08-0.03)
F-15150,000 over 10 years at 6% APR, monthlyPayment 1,665.31 a month=PMT(0.06/12,120,-150000)

5. Capital budgeting

F-16 Net present value. NPV=∑t=0nCFt(1+r)tNPV = \sum_{t=0}^{n} \dfrac{CF_t}{(1 + r)^t}. Accept independent projects with NPV>0NPV > 0.

F-17 Internal rate of return. The rate IRRIRR that solves ∑t=0nCFt/(1+IRR)t=0\sum_{t=0}^{n} CF_t/(1 + IRR)^t = 0.

F-18 Payback period. The time until cumulative undiscounted cash flow turns non-negative; interpolate within the year: Payback=(k−1)+−Cumk−1CFk\text{Payback} = (k - 1) + \dfrac{-\text{Cum}_{k-1}}{CF_k}, where kk is the first year with non-negative cumulative cash flow.

F-19 Profitability index. PI=PV(future cash flows)/∣CF0∣PI = PV(\text{future cash flows}) / |CF_0|.

F-20 Equivalent annual annuity (to compare projects with different lives): EAA=NPV⋅r1−(1+r)−nEAA = NPV \cdot \dfrac{r}{1 - (1 + r)^{-n}}.

SymbolMeaning
CFtCF_tNet cash flow at time tt (negative for investment)
rrOpportunity cost of capital for the project's risk
Cumk\text{Cum}_{k}Cumulative cash flow at the end of year kk

Mini example (Example, Corvane Robotics new picking cell, USD k). CF0=−1,000CF_0 = -1{,}000, then 250, 300, 350, 300, 200 in years 1 to 5, r=10%r = 10\%.

IDResultExcel (cash flows in B1:B6)
F-16NPV 67.26=NPV(0.1,B2:B6)+B1
F-17IRR 12.64%=IRR(B1:B6)
F-18Cumulative: -750, -450, -100, 200, so payback 3.33 years=3+100/300
F-19PI 1.067=NPV(0.1,B2:B6)/-B1
F-20EAA 17.74 a year=PMT(0.1,5,-67.26)

The NPV profile below shows NPV falling as the discount rate rises and crossing zero at the IRR (12.64%).

6. Risk, return and the cost of capital

F-21 Two-asset portfolio (Markowitz 1952):

E[Rp]=w1E[R1]+w2E[R2],σp2=w12σ12+w22σ22+2w1w2ρ12σ1σ2E[R_p] = w_1 E[R_1] + w_2 E[R_2], \qquad \sigma_p^2 = w_1^2\sigma_1^2 + w_2^2\sigma_2^2 + 2 w_1 w_2 \rho_{12}\sigma_1\sigma_2

F-22 Beta. βi=Cov(Ri,Rm)/Var(Rm)\beta_i = \text{Cov}(R_i, R_m)/\text{Var}(R_m).

F-23 Capital asset pricing model (Sharpe 1964, Lintner 1965):

E[Ri]=rf+βi (E[Rm]−rf)E[R_i] = r_f + \beta_i\,(E[R_m] - r_f)

F-24 Weighted average cost of capital (after-tax):

WACC=ED+E rE+DD+E rD(1−tc)WACC = \frac{E}{D + E}\,r_E + \frac{D}{D + E}\,r_D(1 - t_c)

F-25 Unlevering and relevering beta (Hamada 1972, debt beta zero, constant debt): βU=βL1+(1−tc)D/E\beta_U = \dfrac{\beta_L}{1 + (1 - t_c)D/E} and βL=βU[1+(1−tc)D/E]\beta_L = \beta_U\left[1 + (1 - t_c)D/E\right].

F-26 Modigliani and Miller. Without taxes (1958): VL=VUV_L = V_U and rE=rA+DE(rA−rD)r_E = r_A + \dfrac{D}{E}(r_A - r_D). With corporate taxes (1963) and permanent debt: VL=VU+tcDV_L = V_U + t_c D and rE=rU+DE(1−tc)(rU−rD)r_E = r_U + \dfrac{D}{E}(1 - t_c)(r_U - r_D).

SymbolMeaning
wiw_i, σi\sigma_i, ρ12\rho_{12}Portfolio weight, standard deviation of returns, correlation
rfr_f, E[Rm]−rfE[R_m] - r_fRisk-free rate, market risk premium
βL\beta_L, βU\beta_ULevered (equity) beta, unlevered (asset) beta
rEr_E, rDr_D, rAr_A, rUr_UCost of equity, cost of debt, cost of assets, unlevered cost of equity
EE, DD, VVMarket values of equity, debt and the firm
tct_cMarginal corporate tax rate

Mini examples (Example, Corvane Robotics).

IDInputsResultExcel
F-21ww = 0.6 and 0.4, E[R]E[R] = 12% and 7%, σ\sigma = 20% and 12%, ρ\rho = 0.3E[Rp]E[R_p] = 10.00%, σp\sigma_p = 14.20%=SQRT(0.6^2*0.2^2+0.4^2*0.12^2+2*0.6*0.4*0.3*0.2*0.12)
F-22Six monthly returns, stock: 4%, -2%, 6%, 1%, -3%, 5%; market: 3%, -1%, 4%, 0%, -2%, 3%β\beta = 1.50 (illustration only: practitioners often use 36 to 60 monthly returns)=SLOPE(stock,market) or =COVARIANCE.S(stock,market)/VAR.S(market)
F-23rfr_f = 4%, β\beta = 1.3, MRP = 5.5%rEr_E = 11.15%=0.04+1.3*0.055
F-24EE = 600, DD = 200, rDr_D = 6%, tct_c = 25%WACC = 9.49%=600/800*0.1115+200/800*0.06*(1-0.25)
F-25βL\beta_L = 1.3 at D/ED/E = 1/3βU\beta_U = 1.04; relevered at D/ED/E = 0.5: 1.43=1.3/(1+(1-0.25)*200/600)
F-26rAr_A = rUr_U = 10%, rDr_D = 6%, D/ED/E = 0.5; separately, VUV_U = 800 and DD = 200rEr_E = 12.0% (no tax), 11.5% (tax); VLV_L = 800 + 0.25 × 200 = 850=0.1+0.5*(1-0.25)*(0.1-0.06)

7. Valuation

F-27 Free cash flow to the firm. FCFF=EBIT(1−tc)+D&A−CapEx−ΔNWCFCFF = EBIT(1 - t_c) + \text{D\&A} - \text{CapEx} - \Delta NWC.

F-28 Enterprise value by DCF with a Gordon growth terminal value (Williams 1938, Gordon 1959):

EV0=∑t=1TFCFFt(1+WACC)t+TVT(1+WACC)T,TVT=FCFFT(1+g)WACC−gEV_0 = \sum_{t=1}^{T}\frac{FCFF_t}{(1 + WACC)^t} + \frac{TV_T}{(1 + WACC)^T}, \qquad TV_T = \frac{FCFF_T(1 + g)}{WACC - g}

F-29 Equity bridge. Equity value=EV−Net debt\text{Equity value} = EV - \text{Net debt} (net debt = debt minus cash, plus other claims such as preferred stock and minority interests where present); value per share = equity value / diluted shares.

F-30 Dividend discount model (constant growth). P0=D1rE−gP_0 = \dfrac{D_1}{r_E - g}.

SymbolMeaning
FCFFtFCFF_tFree cash flow to the firm in year tt
D&A, CapEx, ΔNWC\Delta NWCDepreciation and amortisation, capital expenditure, change in net working capital
TVTTV_T, ggTerminal value at the end of year TT, perpetual growth rate
D1D_1Dividend expected one year from now

Mini example (Example, Corvane Robotics, USD m). FCFF for years 1 to 5: 80, 95, 105, 115, 120; WACC 9%; gg = 3%; net debt 300; 50 million diluted shares.

IDResultExcel (FCFF in C2:C6)
F-28TV5TV_5 = 120 × 1.03 / 0.06 = 2,060.00; PV of TV 1,338.86; PV of FCFF 393.89; EV 1,732.75=C6*1.03/(0.09-0.03), =NPV(0.09,C2:C6)+TV/1.09^5
F-28Terminal value share of EV: 77.3%=PVTV/EV
F-29Equity 1,432.75; per share 28.66=(EV-300)/50
F-30D1D_1 = 2.00, rEr_E = 8%, gg = 4%: P0P_0 = 50.00=2/(0.08-0.04)

8. Options

F-31 Payoffs at expiry. Call: max⁡(ST−K,0)\max(S_T - K, 0). Put: max⁡(K−ST,0)\max(K - S_T, 0).

F-32 Put-call parity (Stoll 1969; European options, no dividends):

C−P=S0−Ke−rTC - P = S_0 - K e^{-rT}

F-33 Black-Scholes (Black and Scholes 1973, Merton 1973):

C=S0N(d1)−Ke−rTN(d2),P=Ke−rTN(−d2)−S0N(−d1)C = S_0 N(d_1) - K e^{-rT} N(d_2), \qquad P = K e^{-rT} N(-d_2) - S_0 N(-d_1)
d1=ln⁡(S0/K)+(r+σ2/2)TσT,d2=d1−σTd_1 = \frac{\ln(S_0/K) + (r + \sigma^2/2)T}{\sigma\sqrt{T}}, \qquad d_2 = d_1 - \sigma\sqrt{T}
SymbolMeaning
S0S_0, STS_TStock price today and at expiry
KK, TTStrike price, time to expiry in years
rrContinuously compounded risk-free rate
σ\sigmaAnnual volatility of the stock's log return
CC, PPEuropean call and put prices

Mini example (Example). S0S_0 = 50, KK = 48, rr = 4%, TT = 0.5, σ\sigma = 30%.

StepResultExcel
d1d_1, d2d_20.3928, 0.1807=(LN(50/48)+(0.04+0.3^2/2)*0.5)/(0.3*SQRT(0.5))
N(d1)N(d_1), N(d2)N(d_2)0.6528, 0.5717=NORM.S.DIST(d1,TRUE)
Call5.7408=50*NORM.S.DIST(d1,TRUE)-48*EXP(-0.04*0.5)*NORM.S.DIST(d2,TRUE)
Put2.7903=48*EXP(-0.04*0.5)*NORM.S.DIST(-d2,TRUE)-50*NORM.S.DIST(-d1,TRUE)
Parity checkC−PC - P = 2.9505 and S0−Ke−rTS_0 - Ke^{-rT} = 50 - 47.0495 = 2.9505=C-P

9. Economics and international finance

F-34 Price elasticity of demand (Marshall 1890). Point: ε=dQdP⋅PQ\varepsilon = \dfrac{dQ}{dP}\cdot\dfrac{P}{Q}. Midpoint (arc):

ε=(Q2−Q1)/[(Q1+Q2)/2](P2−P1)/[(P1+P2)/2]\varepsilon = \frac{(Q_2 - Q_1)/\left[(Q_1 + Q_2)/2\right]}{(P_2 - P_1)/\left[(P_1 + P_2)/2\right]}

F-35 Profit-maximising markup (Lerner 1934). With constant elasticity ε<−1\varepsilon < -1:

P−MCP=−1ε,P∗=MC⋅ε1+ε\frac{P - MC}{P} = -\frac{1}{\varepsilon}, \qquad P^* = MC\cdot\frac{\varepsilon}{1 + \varepsilon}

F-36 Fisher relation (Fisher 1930). (1+i)=(1+rreal)(1+π)(1 + i) = (1 + r_{\text{real}})(1 + \pi); approximately i≈rreal+πi \approx r_{\text{real}} + \pi.

F-37 Covered interest parity. With SS and FF quoted as domestic currency per unit of foreign currency:

F0,T=S0⋅(1+id)T(1+if)TF_{0,T} = S_0\cdot\frac{(1 + i_d)^T}{(1 + i_f)^T}
SymbolMeaning
QQ, PP, MCMCQuantity, price, marginal cost
ε\varepsilonOwn-price elasticity (negative)
ii, rrealr_{\text{real}}, π\piNominal rate, real rate, inflation
S0S_0, F0,TF_{0,T}Spot and forward exchange rates
idi_d, ifi_fDomestic and foreign interest rates for the period

Mini examples (Example).

IDInputsResultExcel
F-34Northfield jacket: price 40 to 44, units 1,000 to 900Midpoint elasticity -1.11 (elastic)=((900-1000)/950)/((44-40)/42)
F-34Linear demand Q=2000−25PQ = 2000 - 25P at PP = 40Point elasticity -1.00=-25*40/(2000-25*40)
F-35ε\varepsilon = -3, MCMC = 30P∗P^* = 45.00, Lerner index 0.333=30*-3/(1-3)
F-366% nominal, 2.5% inflationReal 3.41% (approximation 3.5%)=1.06/1.025-1
F-37S0S_0 = 1.0850 USD per EUR, iUSDi_{USD} = 4.5%, iEURi_{EUR} = 3.0%, 1 yearFF = 1.1008 USD per EUR=1.085*1.045/1.03

10. Marketing metrics

F-38 Customer lifetime value (constant margin and retention, infinite horizon; Gupta, Lehmann and Stuart 2004 form, margins received at the end of each period the customer is retained):

CLV=m⋅ρ1+i−ρCLV = m\cdot\frac{\rho}{1 + i - \rho}

If the first margin is received immediately at acquisition, CLV=m⋅1+i1+i−ρCLV = m\cdot\dfrac{1 + i}{1 + i - \rho}.

F-39 Expected customer lifetime. 11−ρ\dfrac{1}{1 - \rho} periods.

F-40 Customer value net of acquisition. CLV−ACCLV - AC; spend on acquisition only while this is positive.

SymbolMeaning
mmMargin per customer per period
ρ\rhoRetention rate per period
iiDiscount rate per period
ACACAcquisition cost per customer

Mini example (Example, Northfield loyalty members). mm = 120 a year, ρ\rho = 0.8, ii = 10%, ACAC = 150.

IDResultExcel
F-38CLV 320.00 (440.00 if the first margin is immediate)=120*0.8/(1+0.1-0.8)
F-39Expected lifetime 5 years=1/(1-0.8)
F-40Net value 170.00 per acquired customer=CLV-150

11. Operations

F-41 Economic order quantity (Harris 1913):

Q∗=2DSH,Annual cost=DQS+Q2HQ^* = \sqrt{\frac{2DS}{H}}, \qquad \text{Annual cost} = \frac{D}{Q}S + \frac{Q}{2}H

F-42 Reorder point with safety stock (normal daily demand, fixed lead time): ROP=dˉL+z σdLROP = \bar{d}L + z\,\sigma_d\sqrt{L}, with z=N−1(cycle service level)z = N^{-1}(\text{cycle service level}).

F-43 Newsvendor critical ratio (Arrow, Harris and Marschak 1951):

F(Q∗)=CuCu+Co,Cu=p−c,Co=c−s;Q∗=μ+zσ for normal demandF(Q^*) = \frac{C_u}{C_u + C_o}, \quad C_u = p - c, \quad C_o = c - s; \qquad Q^* = \mu + z\sigma \text{ for normal demand}

F-44 Little's Law (Little 1961): L=λWL = \lambda W, for any stable system in the long run.

F-45 M/M/1 queue (Kendall 1953 notation; Poisson arrivals, exponential service, one server, ρ<1\rho < 1):

ρ=λμ,Lq=ρ21−ρ,Wq=Lqλ,W=1μ−λ,L=λμ−λ\rho = \frac{\lambda}{\mu}, \quad L_q = \frac{\rho^2}{1 - \rho}, \quad W_q = \frac{L_q}{\lambda}, \quad W = \frac{1}{\mu - \lambda}, \quad L = \frac{\lambda}{\mu - \lambda}
SymbolMeaning
DD, SS, HHAnnual demand, cost per order, holding cost per unit per year
dˉ\bar{d}, σd\sigma_d, LL (in F-42)Mean and SD of daily demand, lead time in days
pp, cc, ssSelling price, unit cost, salvage value
CuC_u, CoC_oCost of understocking and of overstocking one unit
LL, λ\lambda, WW (in F-44 and F-45)Average number in system, arrival rate, average time in system
μ\mu, ρ\rhoService rate, utilisation
LqL_q, WqW_qAverage number waiting, average wait in queue

Mini examples (Example).

IDInputsResultExcel
F-41Northfield stove fuel: DD = 12,000, SS = 200, HH = 6Q∗Q^* = 894.43 units; annual cost 5,366.56=SQRT(2*12000*200/6)
F-42dˉ\bar{d} = 40, σd\sigma_d = 8, LL = 5 days, 95%zz = 1.6449, safety stock 29.42, ROP 229.42=40*5+NORM.S.INV(0.95)*8*SQRT(5)
F-43Event jacket: pp = 80, cc = 35, ss = 15, demand N(1000, 200)CR 0.6923, zz = 0.5024, Q∗Q^* = 1,100.48=NORM.INV(45/65,1000,200)
F-44Tallow Creek emergency department: 12 arrivals an hour, 2.5 hours in departmentLL = 30 patients=12*2.5
F-45Tallow Creek triage desk: λ\lambda = 10/h, μ\mu = 12/hρ\rho = 0.833, LqL_q = 4.17, WqW_q = 25.0 min, WW = 0.5 h, LL = 5.0=(10/12)^2/(1-10/12)

Queue length explodes as utilisation approaches 1, which is why a "fully utilised" service desk is a long-wait desk:

12. Statistics and regression

F-46 Sample mean and standard deviation. xˉ=1n∑xi\bar{x} = \frac{1}{n}\sum x_i; s=1n−1∑(xi−xˉ)2s = \sqrt{\frac{1}{n - 1}\sum (x_i - \bar{x})^2}.

F-47 Standard error and confidence interval for a mean. SE=s/nSE = s/\sqrt{n}; xˉ±t0.975, n−1 SE\bar{x} \pm t_{0.975,\,n-1}\,SE.

F-48 One-sample t-test (Student 1908): t=xˉ−μ0s/nt = \dfrac{\bar{x} - \mu_0}{s/\sqrt{n}}, df=n−1df = n - 1.

F-49 Simple linear regression by least squares (Legendre 1805, Gauss 1809):

β^1=∑(xi−xˉ)(yi−yˉ)∑(xi−xˉ)2,β^0=yˉ−β^1xˉ,R2=1−SSESST,t=β^1SE(β^1)\hat{\beta}_1 = \frac{\sum (x_i - \bar{x})(y_i - \bar{y})}{\sum (x_i - \bar{x})^2}, \quad \hat{\beta}_0 = \bar{y} - \hat{\beta}_1\bar{x}, \quad R^2 = 1 - \frac{SSE}{SST}, \quad t = \frac{\hat{\beta}_1}{SE(\hat{\beta}_1)}

F-50 Bayes' rule (Bayes 1763): P(A∣B)=P(B∣A)P(A)P(B)P(A \mid B) = \dfrac{P(B \mid A)P(A)}{P(B)}.

SymbolMeaning
nn, xˉ\bar{x}, ssSample size, mean, standard deviation
μ0\mu_0Mean under the null hypothesis
β^0\hat{\beta}_0, β^1\hat{\beta}_1Estimated intercept and slope
SSESSE, SSTSSTSum of squared residuals, total sum of squares

Mini examples (Example).

IDInputsResultExcel
F-47, F-48Northfield online baskets: xˉ\bar{x} = 52.4, ss = 12, nn = 36, μ0\mu_0 = 50tt = 1.20, pp = 0.238 (two-sided); 95% CI [48.34, 56.46]=T.DIST.2T(1.2,35), =T.INV.2T(0.05,35)
F-498 Northfield stores, local ad spend xx (USD k): 10, 12, 15, 18, 20, 22, 25, 28; sales yy (USD k): 112, 128, 125, 150, 141, 165, 158, 176β^1\hat{\beta}_1 = 3.30, β^0\hat{\beta}_0 = 82.49, R2R^2 = 0.891, tt = 6.99, pp = 0.0004; prediction at xx = 30: 181.51=SLOPE(y,x), =INTERCEPT(y,x), =RSQ(y,x), =LINEST(y,x,TRUE,TRUE)

The t-test does not reject μ0\mu_0 = 50 at the 5% level; the interval shows the plausible range of the mean basket. The regression slope says each extra USD 1k of local advertising is associated with about USD 3.3k more sales in this sample of eight stores; it is an association, not a causal estimate, and the prediction at 30 lies outside the observed range of xx (an extrapolation).

13. Verification register

Each formula was compared with two independent sources: (1) the originating work or a standard corporate finance, operations or economics text, and (2) a second textbook or the official Microsoft Excel function documentation. Every mini example was recomputed in Python (numpy 2.5, numpy-financial 1.1, scipy 1.18) and the key Excel formulas evaluated with a spreadsheet engine; results matched to the decimals shown.

IDsTopicSource 1Source 2My course reference
F-01 to F-06Ratios, DuPont, CCCOpenStax Principles of Accounting, Volume 1 (ratio chapter)Koller, Goedhart and Wessels, Valuation (ROIC and ratio chapters)[ ]
F-07 to F-09CVP, operating leverageOpenStax Principles of Accounting, Volume 2 (CVP chapter)Horngren-tradition cost accounting text (Datar and Rajan, Horngren's Cost Accounting)[ ]
F-10 to F-15Time value of moneyBerk and DeMarzo, Corporate FinanceBrealey, Myers and Allen, Principles of Corporate Finance; Excel PV, FV, PMT, EFFECT documentation[ ]
F-16 to F-20NPV, IRR, payback, PI, EAABerk and DeMarzoBrealey, Myers and Allen; Excel NPV, IRR documentation[ ]
F-21 to F-23Portfolio, beta, CAPMMarkowitz (1952); Sharpe (1964); Lintner (1965)Bodie, Kane and Marcus, Investments[ ]
F-24 to F-26WACC, Hamada, M and MModigliani and Miller (1958, 1963); Hamada (1972)Berk and DeMarzo; Brealey, Myers and Allen[ ]
F-27 to F-30FCFF, DCF, Gordon growthWilliams (1938); Gordon (1959)Koller, Goedhart and Wessels, Valuation; Berk and DeMarzo[ ]
F-31 to F-33Payoffs, parity, Black-ScholesStoll (1969); Black and Scholes (1973); Merton (1973)Hull, Options, Futures, and Other Derivatives; Excel NORM.S.DIST documentation[ ]
F-34 to F-37Elasticity, markup, Fisher, CIPLerner (1934); Fisher (1930)Pindyck and Rubinfeld, Microeconomics; OpenStax Principles of Economics; Krugman, Obstfeld and Melitz, International Economics[ ]
F-38 to F-40CLVGupta, Lehmann and Stuart (2004)Farris, Bendle, Pfeifer and Reibstein, Marketing Metrics[ ]
F-41 to F-43EOQ, ROP, newsvendorHarris (1913); Arrow, Harris and Marschak (1951)Cachon and Terwiesch, Matching Supply with Demand[ ]
F-44 to F-45Little's Law, M/M/1Little (1961); Kendall (1953)Hillier and Lieberman, Introduction to Operations Research; Cachon and Terwiesch[ ]
F-46 to F-50Descriptive statistics, t, regression, BayesStudent (1908); NIST/SEMATECH e-Handbookacademic/stats-formula-sheet and its sources; Excel SLOPE, LINEST, T.DIST.2T documentation[ ]

14. Choosing the right formula

Start from the decision the question asks you to support, not from the numbers given. A question that gives cash flows over several years is a time-value question even if it also mentions risk; a question about a single selling season with uncertain demand is a newsvendor question even if it mentions margins. The flow below routes the most common core-course question types to the formula IDs on this sheet.

15. Self-test

  1. Excel returns 67.26 for =NPV(0.1,B2:B6)+B1 but your classmate's =NPV(0.1,B1:B6) returns 61.14. Which is right and why?
  2. A bank quotes 9% APR compounded monthly. What is the effective annual rate?
  3. Corvane's levered beta is 1.3 at D/ED/E = 1/3 with a 25% tax rate. What is its beta at D/ED/E = 0.5?
  4. Why does the WACC multiply the cost of debt by (1−tc)(1 - t_c) but not the cost of equity?
  5. In the DCF example, what happens to enterprise value if gg rises from 3% to 4% (other inputs unchanged)? Give the new terminal value and EV.
  6. A call and a put on the same stock both have KK = 48 and TT = 0.5; S0S_0 = 50 and rr = 4%. The call trades at 6.20 and the put at 2.79. Is put-call parity violated, and in which direction?
  7. A retailer cuts price from 40 to 36 and units rise from 1,000 to 1,080. Compute the midpoint elasticity. Did revenue rise or fall?
  8. With mm = 120, ρ\rho = 0.8 and ii = 10%, what retention rate would raise CLV (end-of-period convention) to 480?
  9. The triage desk's arrival rate rises from 10 to 11 an hour with μ\mu = 12. What is the new average wait in the queue in minutes?
  10. In the newsvendor example, salvage value drops from 15 to 0. Does the optimal order rise or fall, and why?

My notes and next steps

ItemMy entry
Formulas I still look up[F-25, F-33]
Convention differences with my course[Course uses average balances for ROE]
Flashcards made in mba/mba-concept-flashcards[Date and IDs]
Errors logged in mba/mba-error-log[Date and short description]
Next review dateYYYY-MM-DD

Sources and further reading

  • Arrow, K. J., Harris, T., and Marschak, J. (1951). Optimal inventory policy. Econometrica, 19(3), 250-272.
  • Bayes, T. (1763). An essay towards solving a problem in the doctrine of chances. Philosophical Transactions of the Royal Society of London, 53, 370-418.
  • Black, F., and Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 81(3), 637-654.
  • Fisher, I. (1930). The Theory of Interest. Macmillan.
  • Gordon, M. J. (1959). Dividends, earnings, and stock prices. Review of Economics and Statistics, 41(2), 99-105.
  • Gupta, S., Lehmann, D. R., and Stuart, J. A. (2004). Valuing customers. Journal of Marketing Research, 41(1), 7-18.
  • Hamada, R. S. (1972). The effect of the firm's capital structure on the systematic risk of common stocks. Journal of Finance, 27(2), 435-452.
  • Harris, F. W. (1913). How many parts to make at once. Factory, The Magazine of Management, 10(2), 135-136, 152.
  • Kendall, D. G. (1953). Stochastic processes occurring in the theory of queues and their analysis by the method of the imbedded Markov chain. Annals of Mathematical Statistics, 24(3), 338-354.
  • Lerner, A. P. (1934). The concept of monopoly and the measurement of monopoly power. Review of Economic Studies, 1(3), 157-175.
  • Lintner, J. (1965). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. Review of Economics and Statistics, 47(1), 13-37.
  • Little, J. D. C. (1961). A proof for the queuing formula: L = λW. Operations Research, 9(3), 383-387.
  • Markowitz, H. (1952). Portfolio selection. Journal of Finance, 7(1), 77-91.
  • Marshall, A. (1890). Principles of Economics. Macmillan.
  • Merton, R. C. (1973). Theory of rational option pricing. Bell Journal of Economics and Management Science, 4(1), 141-183.
  • Modigliani, F., and Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. American Economic Review, 48(3), 261-297.
  • Modigliani, F., and Miller, M. H. (1963). Corporate income taxes and the cost of capital: a correction. American Economic Review, 53(3), 433-443.
  • Sharpe, W. F. (1964). Capital asset prices: a theory of market equilibrium under conditions of risk. Journal of Finance, 19(3), 425-442.
  • Stoll, H. R. (1969). The relationship between put and call option prices. Journal of Finance, 24(5), 801-824.
  • Student (1908). The probable error of a mean. Biometrika, 6(1), 1-25.
  • Williams, J. B. (1938). The Theory of Investment Value. Harvard University Press.
  • Microsoft Support. NPV function, https://support.microsoft.com/en-us/excel/functions/npv-function, and Excel functions (by category), https://support.microsoft.com/en-us/excel/excel-functions-by-category (accessed 2026-10-28).
  • NIST/SEMATECH e-Handbook of Statistical Methods, https://www.itl.nist.gov/div898/handbook/ (accessed 2026-10-28). Public domain.
  • OpenStax (free; CC BY 4.0 or CC BY-NC-SA 4.0 by title): Principles of Accounting, Volumes 1 and 2; Principles of Economics; Introductory Statistics, https://openstax.org/.
  • Further reading (by name only): Berk and DeMarzo, Corporate Finance; Brealey, Myers and Allen, Principles of Corporate Finance; Koller, Goedhart and Wessels, Valuation; Hull, Options, Futures, and Other Derivatives; Bodie, Kane and Marcus, Investments; Pindyck and Rubinfeld, Microeconomics; Cachon and Terwiesch, Matching Supply with Demand; Hillier and Lieberman, Introduction to Operations Research; Farris, Bendle, Pfeifer and Reibstein, Marketing Metrics.

Answer key

  1. 67.26 is right. Excel's NPV discounts the first value in the range by one period, so including CF0CF_0 inside the function discounts the investment a year too: 67.26/1.1=61.1467.26/1.1 = 61.14.
  2. (1+0.09/12)12−1=9.38%(1 + 0.09/12)^{12} - 1 = 9.38\% (=EFFECT(0.09,12)).
  3. βU=1.3/1.25=1.04\beta_U = 1.3/1.25 = 1.04; βL=1.04×(1+0.75×0.5)=1.43\beta_L = 1.04 \times (1 + 0.75 \times 0.5) = 1.43.
  4. Interest is tax-deductible, so the firm's after-tax cost of debt is lower; dividends to shareholders are not deductible, so the cost of equity has no tax adjustment.
  5. TV5=120×1.04/0.05=2,496.00TV_5 = 120 \times 1.04/0.05 = 2{,}496.00; PV of TV =2,496/1.095=1,622.23= 2{,}496/1.09^5 = 1{,}622.23; EV =393.89+1,622.23=2,016.12= 393.89 + 1{,}622.23 = 2{,}016.12, an increase of about 16% from one point of growth.
  6. Parity requires C−P=2.9505C - P = 2.9505; the market gives 6.20−2.79=3.416.20 - 2.79 = 3.41. The call is rich relative to the put: sell the call, buy the put and the stock, borrow the present value of KK (before transaction costs).
  7. %ΔQ=80/1040=7.69%\%\Delta Q = 80/1040 = 7.69\%, %ΔP=−4/38=−10.53%\%\Delta P = -4/38 = -10.53\%, elasticity =−0.73= -0.73 (inelastic). Revenue fell from 40,000 to 38,880.
  8. Solve 120ρ/(1.1−ρ)=480120\rho/(1.1 - \rho) = 480: 120ρ=528−480ρ120\rho = 528 - 480\rho, so ρ=528/600=0.88\rho = 528/600 = 0.88.
  9. ρ=11/12=0.9167\rho = 11/12 = 0.9167, Lq=0.91672/0.0833=10.08L_q = 0.9167^2/0.0833 = 10.08, Wq=10.08/11=0.9167W_q = 10.08/11 = 0.9167 h, about 55 minutes (up from 25).
  10. It falls. CoC_o rises to 35, so CR=45/80=0.5625CR = 45/80 = 0.5625, z=0.157z = 0.157 and Q∗≈1,031.46Q^* \approx 1{,}031.46: each unsold unit now costs more, so the retailer orders less.

Revision history

VersionDateAuthorChange
0.1YYYY-MM-DD[Your name]First version from the template
0.2YYYY-MM-DD[Your name]Example: Added course notation column, removed formulas not allowed on the exam sheet

Standard and licence note

Based on general financial mathematics, managerial economics, operations management and statistics as taught across MBA core courses, with attribution to the original works listed above; no single standard governs these formulas. The explanations, notation choices, worked examples and layout are original; no textbook text, published case or exam question is reproduced. The template is not affiliated with or endorsed by any business school, publisher or exam body. Check your own course materials for the notation and conventions they require. Template licence: MIT.

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