CAIIB ABFM Formulas Cheat Sheet 2026 — Ratios, NPV/IRR & DCF on One Page
Quick Answer: This is the complete CAIIB ABFM formula reference covering Module A (ratio analysis), Module B (capital budgeting — NPV, IRR, WACC), and Module C (business valuation — DCF). Full worked examples for each module are in our dedicated Financial Statement Analysis, NPV & IRR, and Business Valuation & M&A guides — this page puts every formula in one place for final revision.
CAIIB ABFM Formulas Cheat Sheet 2026 — Ratios, NPV/IRR & DCF on One Page
ABFM’s numerical content clusters into three areas: ratio analysis (Module A — mostly reinforcement if you have done credit appraisal or cleared JAIIB AFM), capital budgeting (Module B — NPV/IRR, the highest-yield numerical topic in the paper), and business valuation (Module C — DCF, less frequent but still tested). This page is the final-week revision sheet — every formula, no derivations, ready to scan the night before the exam.
1. Module A — Ratio Analysis
Full worked examples with a sample borrower dataset are in our dedicated Financial Statement Analysis guide. Quick reference below:
| Ratio | Formula |
|---|---|
| Current Ratio | Current Assets / Current Liabilities |
| Quick Ratio | (CA − Inventory − Prepaid) / CL |
| Debt-Equity Ratio | Total Debt / Shareholders’ Equity |
| Interest Coverage Ratio | EBIT / Interest Expense |
| DSCR | (PAT+Dep+Int_TL) / (Repayment+Int_TL) |
| Gross Profit Margin | Gross Profit / Net Sales × 100 |
| Net Profit Margin | Net Profit / Net Sales × 100 |
| ROE | Net Profit / Shareholders’ Equity × 100 |
| ROCE | EBIT / Capital Employed × 100 |
| ROE (DuPont) | NP Margin × Asset Turnover × Equity Multiplier |
| Inventory Turnover | COGS / Average Inventory |
| Debtors Turnover | Net Credit Sales / Average Debtors |
| Average Collection Period | 365 / Debtors Turnover Ratio |
| Total Asset Turnover | Net Sales / Total Assets |
2. Module B — Capital Budgeting
2.1 — NPV, IRR, Payback
Net Present Value (NPV)
NPV = Σ[CFₜ/(1+r)ᵗ] − C₀
CFₜ = cash flow at time t, r = discount rate, C₀ = initial investment. Accept if NPV > 0.
IRR (Interpolation Method)
IRR = r₁ + [NPV₁/(NPV₁−NPV₂)] × (r₂−r₁)
r₁ = lower rate (positive NPV), r₂ = higher rate (negative NPV). Accept if IRR > WACC.
Payback Period
Years until cumulative CF = Initial Investment
Ignores time value of money and cash flows after payback
Profitability Index (PI)
PI = PV of Future Cash Flows / Initial Investment
Accept if PI > 1 (equivalent to NPV > 0)
2.2 — Cost of Capital
WACC
WACC = (E/V×Ke) + (D/V×Kd×(1−T))
E = equity value, D = debt value, V = E+D, Ke = cost of equity, Kd = cost of debt, T = tax rate
Cost of Equity (CAPM)
Ke = Rf + β(Rm − Rf)
Rf = risk-free rate, β = beta, Rm = expected market return
Post-Tax Cost of Debt
Kd(1−T)
Interest is tax-deductible, so the effective cost of debt is lower than the stated rate
Worked Example — NPV
Q: Initial investment ₹100L. Cash flows: Year 1 = ₹40L, Year 2 = ₹45L, Year 3 = ₹50L. Discount rate = 12%. Find NPV.
PV(Y2) = 45/(1.12)² = 35.87
PV(Y3) = 50/(1.12)³ = 35.59
Total PV = 35.71 + 35.87 + 35.59 = 107.17
NPV = 107.17 − 100 = ₹7.17L
NPV > 0 → Accept the project
3. Module C — Business Valuation
DCF — Enterprise Value
EV = Σ[FCFₜ/(1+r)ᵗ] + [TV/(1+r)ⁿ]
FCF = Free Cash Flow, TV = Terminal Value, r = WACC/discount rate
Terminal Value (Perpetuity Growth)
TV = FCFₙ×(1+g) / (r−g)
g = long-term growth rate, r = discount rate (must be > g)
Asset-Based Valuation
Value = Fair Value of Assets − Total Liabilities
Net Asset Value approach — best for asset-heavy or distressed businesses
Synergy Value Test
Value(A+B) > Value(A) + Value(B)
A merger creates value only if this inequality holds
Note on DSCR: This ratio is tested in both ABM (Module C — Credit Management) and ABFM (Module A — leverage ratios). The formula is identical. See our ABM Credit Management guide for the complete worked example with a term loan repayment schedule.
All ABFM Formulas — One Reference Table
| Formula Name | Expression | Module |
|---|---|---|
| Current Ratio | CA / CL | A — FSA |
| Debt-Equity Ratio | Total Debt / Equity | A — FSA |
| ROE (DuPont) | NP Margin × Asset Turnover × Equity Multiplier | A — FSA |
| Inventory Turnover | COGS / Average Inventory | A — FSA |
| NPV | Σ[CFₜ/(1+r)ᵗ] − C₀ | B — Capital Budgeting |
| IRR (Interpolation) | r₁+[NPV₁/(NPV₁−NPV₂)]×(r₂−r₁) | B — Capital Budgeting |
| Profitability Index | PV of Future CF / Initial Investment | B — Capital Budgeting |
| WACC | (E/V×Ke)+(D/V×Kd×(1−T)) | B — Capital Budgeting |
| Cost of Equity (CAPM) | Rf + β(Rm−Rf) | B — Capital Budgeting |
| DCF Enterprise Value | Σ[FCFₜ/(1+r)ᵗ] + TV/(1+r)ⁿ | C — Valuation |
| Terminal Value | FCFₙ×(1+g) / (r−g) | C — Valuation |
| Asset-Based Value | Fair Value Assets − Liabilities | C — Valuation |
Frequently Asked Questions — ABFM Formulas
Which ABFM formula category has the most exam weight?
NPV and IRR together typically account for 8–12 marks — the single highest-yield numerical topic in ABFM. Ratio analysis (Module A) is tested across more questions but each carries less calculation depth. DCF valuation (Module C) appears less frequently but the terminal value concept is a recurring theme when it does. Prioritise NPV/IRR mastery first, then ratios, then DCF.
Do I need to memorise the IRR interpolation formula exactly?
Yes — this is one of the few ABFM formulas that must be memorised precisely, since the calculator cannot solve for IRR directly. Practice the two-step process: compute NPV at a lower rate (positive result) and a higher rate (negative result), then interpolate between them. Once you’ve done 5–6 problems, the formula becomes automatic.
Why does the Terminal Value formula require r > g?
If the growth rate (g) equalled or exceeded the discount rate (r), the denominator (r−g) would be zero or negative, making the Terminal Value formula mathematically undefined or nonsensical (an infinite or negative valuation for a growing perpetuity). IIBF questions always use a growth rate meaningfully below the discount rate — check this relationship holds before calculating, as a question testing this constraint may ask you to identify why a given growth assumption is invalid.
Is WACC calculated using book value or market value weights?
Always check what the question specifies. Market value weights are theoretically preferred since they reflect current investor expectations, but IIBF questions sometimes provide book value figures and expect book-value weighting if market values aren’t given. Read the question carefully — if both are provided, use whichever the question explicitly asks for.
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