Formula Reference

Shows how much dividend you can expect relative to the current share price.

Dividend yield = dividend per share / share price

Shows how much dividend you are now receiving relative to your own buy price.

Yield on cost = current dividend per share / average purchase price

Shows what share of profit is going to dividends.

Payout ratio = total dividends / net profit

The best-known form of the Dividend Discount Model, for judging whether today's price is reasonable from future dividends.

Share price ≈ next-year dividend per share / (required return − dividend growth rate)

Shows how many times profit the shares are being bought at.

P/E = share price / earnings per share

Expresses the share price as a multiple of net assets.

P/B = share price / net assets per share

Shows how much profit is being generated on shareholders' equity.

ROE = net profit / shareholders' equity

Shows how efficiently profit is generated on the capital put into the business.

ROIC = after-tax operating profit / invested capital

Reads a fund's result by combining the price change with the distributions received.

Total return = change in NAV + distributions

A way of keeping the whole cost of running the fund in view, not just the headline expense ratio.

Real cost ≈ expense ratio + other costs

Weights each asset's expected return by its share of the portfolio and sums them.

Expected return = Σ(w_i × μ_i)

Expresses how much the whole portfolio swings, using weights and covariances.

Variance = w'Σw

Shows how much reward you get for the risk you are taking.

Sharpe ratio = (expected return − risk-free rate) / volatility

Quantifies how much two assets tend to move together.

Cov(i, j) = E[(R_i − μ_i)(R_j − μ_j)]

Standardises covariance so the strength of moving in the same direction is easier to read.

Corr(i, j) = Cov(i, j) / (σ_i × σ_j)

Shows which way and how far the price moved over a set period.

Momentum = rate of price change over a set past period

Shows how choppy the price movement is and how widely it swings.

Volatility = standard deviation of returns

Shows how far below a past peak the price now sits.

Drawdown = (current price / past peak) − 1

Explains excess return through four factors: market, size, value, and momentum.

R_i − R_f = α + β_m MKT + β_s SMB + β_v HML + β_u MOM + ε

The basic formula for finding efficient allocations by balancing expected return against variance.

max μ'w − λ × w'Σw

The equilibrium expected return used in Black-Litterman, reverse-engineered from a market-cap weighted portfolio.

Π = δΣw_mkt