Equation derived from Rp = D/Po
As such I use Rd to differentiate from Rp, but Rp could be retained also but probably as Rp’ so as not to confuse the original.
For simplification Rd = Rp’ in respect to Return on Debt and its relation to Cost of Debt & Returns on Debt investment normally associated with Preferred Stock performance.
But Rp’ which equals to or is represented here as Rd is not in any way related to the functionality either in Finance or Accounts to that of Rp.
As such while one is a pure Preferred Stock. The other is a Hybrid of Debt vs Equity financing, Preferred Stock, with some elements of Equity finance, a Bond and all the elements associated with all where applicable.
This hybrid equation operates outside of all the parameters normally associated with Debt vs Equity finance.
Rd = [(0.01)* x (Po) / Po] x t = Rd in respect to Percentage obtained. based from application in the market of Public Utility Product/Public Utility Service Market Process Patent (Filed in mid 2011).
Remove the Po as a denominator and you obtain the monetary value of investment per year.
Rd = (0.01)* x (Po) x t = Rd Cash Value One Time Payment
Feedback would be great in refining this equation.
Not just posted by, but developed by Rodger McKenzie in Kingston Jamaica on that date. The equation that is.
The above starting out as stated before or influenced some how by Rp = D/Po, gave rise to the following equations along with some discoveries on my part in respect to Financial equations in possible connection with the equations developed to represent something that is not in a Corporate Finance text book to date the last time I checked.
Rp = D/Po
Rp’ = Rd = (D)* x (Po)
VARIATIONS & IMPLICATIONS
(1) Rd = (D)* x (Po) (Income / single payment period)
(2) Rd = [(D)* x (Po)] x t (Multiple payment period, ROE in $)
(3) Rd = ([(D)* x (Po)] x t) – (Po) (Net Income)
(4) Rd = ([(D)* x (Po)]/Po) x t x 100 (ROE in %)
(5) Rd = ([(D)* x (Po)]/Po) x t (Equity Multiplier)
Now let’s take a look at why the Du-Pont Identity is considered in a Finance book.
ROE = (Profit margin)*(Asset turnover)*(Equity multiplier)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit/Equity)
Thus the reasons. But before that let’s look on some basic equations and see what pops up.
RETURN ON EQUITY (ROE)
ROE = Net income / Total equity
ROE = ROA x Equity Multiplier
= ROA x (1 – Debt-equity ratio)
RETURN ON ASSETS (ROA)
ROA = Net income/ Total assets
TOTAL DEBT RATIO
Total debt ratio = Total assets – Total equity / Total assets
DEBT EQUITY RATIO
Debt equity ratio = Total debt/Total equity
Equity multiplier = Total assets / Total equity
TOTAL TURN OVER
Total asset turnover = Sales/Total assets
Considering the true story behind all the above. At a later date that story will be filled in below. However for now what all the above says and is proven as fact unless shown otherwise is basically the following:
The market process patent end result being Rp’ = D* x (Po) and all its variations lead to;
1. Making non effect lack of optimal Operational Efficiency (Measured by profit margin)
2. Making non effect lack of optimal Asset Use Efficiency (Measured by the total asset turn over)
3. Making non effect lack of optimal Financial Leverage (Measured by the equity multiplier)
All the above also takes into account depreciation, financial risks, interest paid, as such taking into account the financial definition of OCF.
In short the Du-Pont Identity test does not apply to this equation. As all the factors that the Du-Pont Identity looks for does not exist as the market process patent end result eliminates such factors from being negative. That being the effect makes points 1-3 highly efficient.
As such ROE = ROA in %. Discovered these findings not by working backwards of the equations seen above, but by working forwards and discovering them one step at a time. Discovering meaning seeing what was in the text books for the first time and applying them to the equation I developed in such order.
Considering that the original equation being Rp = D/Po and what it is developed for specifically around stocks. How does this new equation factor in Finance, if at all, and that until present it was never being used or does not exist until now much less being used until now with factual ROA & ROE, and that the ROE% = ROA%?
But truth be told that is how the patent treats equity versus debt finance. There is one equation left out which explains all the above. of course I knew that before discovering all the above, but had no way in representing it in an equation until now. That being the end result of the patent once applied to the regular market with extremely stiff competition and extremely thin profit margins.