Corporate finance can look intimidating because the formulas are dense, but most are variations on one idea: a dollar in the future is worth less than a dollar today, and the right price reflects the cash a business will generate. The Finance, Trading & Business Cheatsheet lists the key formulas on two pages. This guide explains what they mean and how to use them.

Growth and returns

CAGR (compound annual growth rate) smooths growth over several years:

CAGR = (Ending value ÷ Beginning value)^(1 ÷ years) − 1

If an investment grows from $10,000 to $16,000 over four years, the CAGR is (1.6)^(0.25) − 1, or about 12.5 percent per year.

Compound interest follows A = P(1 + r/n)^(nt), covered in more detail in our FIRE math guide.

Risk and expected return

CAPM (Capital Asset Pricing Model) estimates the return investors require for a given level of market risk:

Expected return = Risk-free rate + β × (Market return − Risk-free rate)

Beta (β) measures how much a stock tends to move relative to the market. A beta above 1 suggests more volatility than the market, and below 1 suggests less.

Sharpe ratio measures return per unit of risk: (portfolio return − risk-free rate) ÷ portfolio standard deviation. Higher is generally better, all else equal.

Cost of capital

WACC (Weighted Average Cost of Capital) blends the cost of equity and debt:

WACC = (E/V) × Re + (D/V) × Rd × (1 − Tc)

Here E is equity value, D is debt, V is total capital (E + D), Re is cost of equity, Rd is cost of debt, and Tc is the corporate tax rate. The tax term reflects that interest is typically tax-deductible.

Valuing cash flows

NPV (Net Present Value) discounts each future cash flow back to today:

NPV = Σ CFt ÷ (1 + r)^t − initial investment

DCF (Discounted Cash Flow) applies this logic to a company's projected free cash flow, discounted at WACC, plus a terminal value. Analysts use DCF to estimate intrinsic value, but the result is highly sensitive to growth and discount-rate assumptions, so small changes can move the answer a lot.

Free cash flow is the cash left after operating costs and capital expenditures, the input most DCF models depend on.

Enterprise value and multiples

Enterprise value = Market capitalization + Debt − Cash

Multiples compare valuation across companies. P/E (price to earnings), P/S (price to sales), P/B (price to book) and EV/EBITDA are the most common. Comparable company analysis uses these multiples from similar firms, and precedent transactions use multiples from past acquisitions. Use several methods together rather than trusting one number.

How to study these formulas

  1. Memorize the structure of each formula, not just the symbols.
  2. Work one example by hand, then change one assumption and see how the output moves.
  3. Keep a single reference page beside your study materials.

This article is for education and not investment advice. For a printable version of these formulas, see the Finance, Trading & Business Cheatsheet. Related: the 1% risk rule for active traders.