Research Analyst Important Formula List 2026: 50 Must-Know Formulas Explained Simply!
Financial Statement & Profitability Formulas: Understanding profitability is the first step in company analysis.
Revenue Growth Rate measures how fast a company’s sales are increasing over time. It indicates demand, expansion, and business momentum.
Formula: (Current Revenue − Previous Revenue) ÷ Previous Revenue × 100
Gross Profit shows profit after production costs are deducted from revenue.
Formula: Revenue − Cost of Goods Sold
Gross Margin indicates pricing power and cost efficiency.
Formula: Gross Profit ÷ Revenue × 100
Operating Profit (EBIT) reflects profit from core operations before interest and tax.
Formula: Gross Profit − Operating Expenses
Operating Margin measures operational efficiency.
Formula: EBIT ÷ Revenue × 100
Net Profit represents final earnings after all expenses and taxes.
Formula: Revenue − All Expenses − Tax
Net Profit Margin shows how much profit is generated from each rupee of revenue.
Formula: Net Profit ÷ Revenue × 100
EBITDA highlights cash-like operating performance.
Formula: Net Profit + Interest + Tax + Depreciation + Amortization
EBITDA Margin helps compare companies across industries.
Formula: EBITDA ÷ Revenue × 100
Earnings Per Share (EPS) indicates profit available to each shareholder.
Formula: Net Profit ÷ Total Shares Outstanding
Valuation Formulas (Core of Equity Research): Valuation formulas determine whether a stock is cheap or expensive.
Price to Earnings (P/E) Ratio shows how much investors pay for one unit of earnings.
Formula: Market Price per Share ÷ EPS
Forward P/E uses expected future earnings instead of past earnings.
PEG Ratio adjusts P/E for growth.
Formula: P/E ÷ Earnings Growth Rate
Price to Book (P/B) Ratio compares market value with book value.
Formula: Market Price ÷ Book Value per Share
Book Value per Share shows net asset value per share.
Formula: (Total Assets − Liabilities) ÷ Shares
Enterprise Value (EV) represents total firm value.
Formula: Market Cap + Debt − Cash
EV/EBITDA is widely used in mergers and acquisitions.
Market Capitalization measures company size.
Formula: Share Price × Total Shares
Dividend Yield reflects income return for investors.
Formula: Dividend per Share ÷ Market Price × 100
Dividend Payout Ratio shows how much profit is distributed.
Formula: Dividend ÷ Net Profit × 100
Liquidity & Solvency Ratios: These formulas assess financial stability.
Current Ratio measures short-term liquidity.
Formula: Current Assets ÷ Current Liabilities
Quick Ratio excludes inventory for stricter liquidity analysis.
Formula: (Current Assets − Inventory) ÷ Current Liabilities
Debt to Equity Ratio evaluates leverage risk.
Formula: Total Debt ÷ Shareholders’ Equity
Interest Coverage Ratio checks debt-servicing ability.
Formula: EBIT ÷ Interest Expense
Debt Ratio measures asset financing through debt.
Formula: Total Debt ÷ Total Assets
Return Ratios (Highly Tested): Return ratios evaluate management efficiency.
Return on Equity (ROE) measures shareholder return.
Formula: Net Profit ÷ Shareholders’ Equity × 100
Return on Assets (ROA) shows asset efficiency.
Formula: Net Profit ÷ Total Assets × 100
Return on Capital Employed (ROCE) evaluates overall capital efficiency.
Formula: EBIT ÷ Capital Employed × 100
Asset Turnover Ratio shows revenue generation efficiency.
Formula: Revenue ÷ Total Assets
Cash Flow & Efficiency Metrics: Cash flows reveal earnings quality. Operating Cash Flow (OCF) is cash from core operations.
Free Cash Flow (FCF) indicates surplus cash available.
Formula: Operating Cash Flow − Capital Expenditure
Inventory Turnover Ratio measures inventory efficiency.
Formula: COGS ÷ Average Inventory
Receivables Turnover Ratio shows collection efficiency.
Formula: Revenue ÷ Average Receivables
Cash Conversion Cycle (CCC) measures working capital efficiency.
Formula: Inventory Days + Receivable Days − Payable Days
Growth, Risk & Market Metrics: These formulas measure volatility and return consistency.
CAGR shows long-term growth rate.
Formula: (Ending Value ÷ Beginning Value)^(1/n) − 1
- Beta measures market risk.
- Alpha shows excess return over benchmark.
- Standard Deviation measures volatility.
Sharpe Ratio evaluates risk-adjusted return.
Formula: (Return − Risk-Free Rate) ÷ Standard Deviation
Valuation Models Every Research Analyst Must Know & These models drive investment recommendations:
Discounted Cash Flow (DCF) estimates intrinsic value using future cash flows.
Formula: Σ Cash Flow ÷ (1 + Discount Rate)^t
Terminal Value estimates value beyond forecast period.
Formula: FCF × (1 + g) ÷ (r − g)
- FCF = Free Cash Flow
- g = Growth rate
- r = Discount rate (usually WACC)
Weighted Average Cost of Capital (WACC) represents firm’s cost of capital.
Formula: WACC = (E / V × Re) + (D / V × Rd × (1 − T))
- E = Market value of equity
- D = Market value of debt
- V = Total value (E + D)
- Re = Cost of equity
- Rd = Cost of debt
- T = Tax rate
Cost of Equity (CAPM) estimates expected equity return.
Formula: Re = Rf + β(Rm−Rf)
- Rₑ = Cost of Equity
- R_f = Risk-free rate (e.g., government bond yield)
- β (Beta) = Stock's sensitivity to market risk
- R_m = Expected market return
- (R_m − R_f) = Market risk premium
Margin of Safety protects investors from valuation errors.
Formula: (Intrinsic Value − Market Price) ÷ Intrinsic Value