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Corporate Finance Cheat Sheet

The core ideas of Corporate Finance distilled into a single, scannable reference — perfect for review or quick lookup.

PiqCue — piqcue.com/corporate-finance/cheatsheet

Quick Reference

Net Present Value (NPV)

A capital budgeting method that calculates the present value of all future cash flows generated by a project minus the initial investment. A positive NPV indicates the project is expected to add value to the firm.

Weighted Average Cost of Capital (WACC)

The average rate of return a company must earn on its existing assets to satisfy all of its investors, calculated as a weighted average of the cost of equity and the after-tax cost of debt based on the firm's capital structure.

Capital Structure

The specific mix of debt and equity a firm uses to finance its overall operations and growth. The optimal capital structure minimizes the WACC and maximizes the firm's total value.

Internal Rate of Return (IRR)

The discount rate at which the net present value of all cash flows from a project equals zero. Projects with an IRR exceeding the company's hurdle rate are generally considered acceptable investments.

Modigliani-Miller Theorem

A foundational proposition stating that in a perfect market with no taxes, bankruptcy costs, or asymmetric information, a firm's value is unaffected by how it is financed. This serves as a benchmark for understanding real-world capital structure decisions.

Free Cash Flow (FCF)

The cash generated by a company's operations after subtracting capital expenditures. FCF represents the cash available to pay dividends, reduce debt, or reinvest in the business.

Dividend Policy

The strategy a company uses to determine how much it will pay out to shareholders in dividends versus how much it will retain for reinvestment. Major theories include the dividend irrelevance theory, bird-in-hand theory, and tax preference theory.

Cost of Equity

The return that equity investors require for investing in a company, often estimated using the Capital Asset Pricing Model (CAPM) as the risk-free rate plus the equity risk premium multiplied by the firm's beta.

Working Capital Management

The management of a firm's short-term assets and liabilities to ensure it has sufficient liquidity to meet day-to-day obligations while minimizing the cost of holding current assets.

Mergers and Acquisitions (M&A)

Transactions in which the ownership of companies or their operating units is transferred or consolidated. M&A can create value through synergies, economies of scale, market expansion, or strategic repositioning.

Key Terms at a Glance

Agency Cost:The cost arising from conflicts of interest between a firm's managers, shareholders, and creditors.
Beta:A measure of a stock's systematic risk relative to the overall market.
Capital Budgeting:The process of evaluating and selecting long-term investments that are consistent with the firm's goal of maximizing value.
Capital Structure:The combination of debt and equity used to finance a firm's assets and operations.
CAPM:Capital Asset Pricing Model; a model that describes the relationship between systematic risk and expected return for assets.
Cost of Capital:The required return necessary to make a capital budgeting project worthwhile.
Cost of Equity:The return that equity investors require for their investment in a company.
DCF:Discounted Cash Flow; a valuation method using projected future cash flows discounted to present value.
Debt-to-Equity Ratio:A leverage ratio comparing a company's total debt to its shareholders' equity.
Dividend:A distribution of a portion of a company's earnings to its shareholders.
EBITDA:Earnings Before Interest, Taxes, Depreciation, and Amortization; a measure of operating performance.
Enterprise Value:The total value of a company, calculated as market capitalization plus debt minus cash.
Free Cash Flow:Cash generated by operations minus capital expenditures, available for distribution to investors.
Hurdle Rate:The minimum rate of return a project must earn to be accepted.
IRR:Internal Rate of Return; the discount rate at which a project's NPV equals zero.

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Corporate Finance Cheat Sheet - Quick Reference Guide | PiqCue