NISM Series XV Formula Sheet
Ten formulas, what each one is for, and a worked example.
A research analyst values companies, and the Series XV exam tests the tools for it: earnings multiples, return ratios and discounted cash flow.
These ten formulas cover the valuation chapters, with a worked DuPont example.
The 10 Formulas
1
Formula
P/E ratio
Expression
Market price ÷ EPS
Use it for
The most common relative valuation multiple.
2
Formula
PEG ratio
Expression
P/E ÷ Expected EPS growth (%)
Use it for
P/E adjusted for growth.
3
Formula
Enterprise value
Expression
Market cap + Debt − Cash
Use it for
Value of the whole firm, independent of capital structure.
4
Formula
EV/EBITDA
Expression
Enterprise value ÷ EBITDA
Use it for
Comparing firms with different leverage and depreciation.
5
Formula
Return on equity (DuPont)
Expression
ROE = Net margin × Asset turnover × Equity multiplier
Use it for
Breaking ROE into profitability, efficiency and leverage.
6
Formula
ROCE
Expression
EBIT ÷ (Equity + Debt) × 100
Use it for
Return on all the capital in the business.
7
Formula
Free cash flow to firm
Expression
EBIT × (1 − t) + Depreciation − Capex − Δ Working capital
Use it for
Cash flow available to all capital providers.
8
Formula
Dividend discount model (Gordon)
Expression
P₀ = D₁ ÷ (kₑ − g)
Use it for
Value of a stable, dividend-paying company.
9
Formula
Cost of equity (CAPM)
Expression
kₑ = R_f + β × (R_m − R_f)
Use it for
Discount rate for equity valuation.
10
Formula
WACC
Expression
kₑ × E ÷ V + k_d × (1 − t) × D ÷ V
Use it for
Discount rate for free cash flow to the firm.
| # | Formula | Expression | Use it for |
|---|---|---|---|
| 1 | P/E ratio | Market price ÷ EPS | The most common relative valuation multiple. |
| 2 | PEG ratio | P/E ÷ Expected EPS growth (%) | P/E adjusted for growth. |
| 3 | Enterprise value | Market cap + Debt − Cash | Value of the whole firm, independent of capital structure. |
| 4 | EV/EBITDA | Enterprise value ÷ EBITDA | Comparing firms with different leverage and depreciation. |
| 5 | Return on equity (DuPont) | ROE = Net margin × Asset turnover × Equity multiplier | Breaking ROE into profitability, efficiency and leverage. |
| 6 | ROCE | EBIT ÷ (Equity + Debt) × 100 | Return on all the capital in the business. |
| 7 | Free cash flow to firm | EBIT × (1 − t) + Depreciation − Capex − Δ Working capital | Cash flow available to all capital providers. |
| 8 | Dividend discount model (Gordon) | P₀ = D₁ ÷ (kₑ − g) | Value of a stable, dividend-paying company. |
| 9 | Cost of equity (CAPM) | kₑ = R_f + β × (R_m − R_f) | Discount rate for equity valuation. |
| 10 | WACC | kₑ × E ÷ V + k_d × (1 − t) × D ÷ V | Discount rate for free cash flow to the firm. |
Worked Example: DuPont ROE
A company has a 10% net profit margin, asset turnover of 1.2 and an equity multiplier of 1.5.
- 1
Multiply the three parts
0.10 × 1.2 × 1.5 = 0.18.
- 2
ROE
18%.
- 3
Read it
If ROE rises only because the equity multiplier rose, the improvement comes from more debt, not better operations.
Free account, this exam preselected.
Match Numerators and Denominators
Equity value goes with equity measures: P/E and cost of equity. Enterprise value goes with firm-wide measures: EBITDA and WACC. Mixing them is the commonest valuation error in exam options.
FAQs
Why add debt and subtract cash in EV?expand_more
An acquirer takes on the debt and gets the cash, so EV reflects the net cost of buying the whole business.
When does the Gordon model fail?expand_more
When growth is close to or above the cost of equity, or when the company doesn't pay a stable dividend.
Is ROE or ROCE better?expand_more
They answer different questions. ROE is the return to shareholders. ROCE is the return on all capital, so it's better for comparing firms with different leverage.
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