The Short Answer

What Are Finance Formulas Used For?

Answer

Finance formulas answer money questions that involve time and risk. What is money today worth later? What is a future payment worth now? Is this investment worth the cost? What should this stock or bond sell for? Every lesson below answers one of those questions with a formula, a worked example, and Excel.

Students get stuck in the same place: not the math, but knowing which formula fits the problem. Dr. Paul has taught these formulas in college classrooms and used them with 1,000+ business clients. The groups below are sorted by the question you are trying to answer.

Want the Numbers to Make Sense?

Business ConsultingDr. Paul helps owners turn numbers like these into real decisions on cash, pricing, and growth.See consulting options → Business Plan WritingA complete plan with financial projections that lenders and investors can follow.See business plan prices → Business Plan TemplatesAn editable Word plan and Excel financial model built for your industry.Browse templates → Small Business EducationFree lessons on financial statements, ratios, and the formulas behind them.Start learning free →

Group One

What Is the Time Value of Money?

Money today is worth more than the same money later, because today's money can earn interest. These two formulas are the foundation for everything else on this page.

Future Value FormulaWhat money invested today grows to with compound interest.Watch the lesson → Present Value FormulaWhat a future amount is worth in today's dollars.Watch the lesson →

Group Two

How Do You Decide if an Investment Is Worth It?

Capital budgeting answers the big question: should you spend the money? Start with what your money costs, then test the project against it.

NPV, IRR and Payback PeriodWhether a project adds value, what it returns, and how fast it pays back.Watch the lesson → WACC FormulaThe blended cost of debt and equity every project has to beat.Watch the lesson →

Group Three

How Do You Measure Investment Returns?

These lessons measure what an investment earned, what it should earn, and how a mix of stocks behaves together.

Expected Rate of ReturnThe probability weighted return you can expect from an investment.Watch the lesson → Holding Period ReturnTotal return from price change plus income over the time you held it.Watch the lesson → Portfolio Weights and Returns in ExcelGain or loss and the weight of each stock in a portfolio.Watch the lesson → Portfolio BetaHow much a portfolio moves compared to the overall market.Watch the lesson →

Group Four

How Do You Value Stocks and Bonds?

Valuation turns future cash, dividends or coupons, into a price today. These lessons cover common stock, preferred stock, dividends, and interest rates.

Constant Growth Stock ValuationThe price of a stock whose dividend grows at a steady rate.Watch the lesson → Preferred Stock PriceThe value of a fixed dividend and the return investors require.Watch the lesson → Dividend YieldCurrent versus expected yield, and why a high yield can mislead.Watch the lesson → Yield CurveWhat normal, flat, and inverted curves mean, and how to chart one.Watch the lesson →

Put It to Work

How Do Real Companies Use These Numbers?

Formulas click faster when you see them on real annual reports. Dr. Paul walks through public company financials, ratio by ratio, the way an analyst grades them.

Company Financial Analysis ExamplesReal public companies analyzed with financial statements and ratios.Watch the lesson →

Quick Finder

Which Finance Formula Do I Need?

If your question is...Use this lesson
What will my savings grow to?Future Value Formula
What is a payment I get later worth today?Present Value Formula
Should the business buy this equipment?NPV, IRR and Payback Period
What return should a project have to beat?WACC Formula
What return can I expect given different outcomes?Expected Rate of Return
How much did I actually make on a stock I sold?Holding Period Return
How much of my portfolio is in each stock?Portfolio Weights and Returns
How risky is my portfolio compared to the market?Portfolio Beta
What is a stock with growing dividends worth?Constant Growth Stock Valuation
What is a fixed dividend share worth?Preferred Stock Price
How much cash does a stock pay me per dollar of price?Dividend Yield
Do long bonds pay more than short bonds right now?Yield Curve
Dr. Paul's Insight

Look for the clue words. "Grow to" or "worth in the future" means future value. "Worth today" means present value. "Should we invest" means NPV. "Dividend never changes" means preferred stock. "Dividend grows" means constant growth. Find the clue, and the formula picks itself.

Real World Use

How a Student Uses This Page

Finals Week

Sorting three exam problems in under a minute

A practice exam has three problems. One: "$8,000 is invested at 7% for 6 years. What is it worth?" Two: "A preferred share pays $2.40 a year and investors require 6%. What is its price?" Three: "What is $25,000 received in 4 years worth today at 8%?"

Use the clue words. Problem one says "worth" after time passes, so it is future value: $8,000 × 1.076 = $12,005.84. Problem two is a fixed dividend, so it is preferred stock: $2.40 ÷ 0.06 = $40.00. Problem three asks for today's value, so it is present value: $25,000 ÷ 1.084 = $18,375.75.

Picking the formula took seconds once the question was clear. Each answer checks in Excel with =FV(7%,6,0,-8000), =2.4/6%, and =PV(8%,4,0,-25000).

Keep Going

Start With the Most Watched Lessons

How to Use the Future Value Formula

Dr. Paul solves the future value formula step by step with a worked example. (3:52)

Gain or Loss and Portfolio Weights in Excel

Dr. Paul calculates gain, loss, and the weight of each stock in a portfolio. (13:41)

Expected Rate of Return

Dr. Paul explains expected return with simple, clear examples. (3:03)

Questions

Finance Formula Questions Students Ask

What are the most important finance formulas to know?
Start with future value and present value, because almost every other formula builds on them. Then learn NPV and WACC for investment decisions, and the stock valuation formulas for pricing shares.
How do I know which finance formula to use?
Find the clue words in the question. "Grow to" points to future value, "worth today" points to present value, and "should we invest" points to NPV. The quick finder table on this page maps common questions to the right lesson.
Can I solve finance formulas in Excel?
Yes. Excel has built-in functions such as =FV(), =PV(), =NPV(), =IRR(), and =RATE(). Every lesson here shows the exact Excel formula and the result so you can check your work.
Do I need a financial calculator for finance class?
A financial calculator helps on timed exams, but it is not required to learn the material. Working a problem by formula and checking it in Excel builds a stronger understanding than keystrokes alone.
Are these finance formulas useful for small business owners?
Yes. NPV and payback tell an owner whether equipment is worth buying, and WACC shows what the business's money really costs. Dr. Paul uses these same formulas with consulting clients when they weigh big decisions.
Beginner's Guide to Understanding Financial Statements and Financial Ratios book cover

Formulas stick when you see them on real financial statements.

Dr. Paul's Beginner's Guide to Understanding Financial Statements and Financial Ratios walks through statements and ratios using Apple's actual 10-K, in plain English, so the numbers behind these formulas finally make sense.

Get the Book →

Written by Dr. Paul Borosky, DBA, MBA, current college professor, business consultant, and author with 14+ years and 1,000+ businesses served.

This page is for general educational purposes only. It is not financial, investment, legal, or tax advice.