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ib > Accounting > Flashcards

Accounting Flashcards

1
Q

Income statement

A
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2
Q

Cash flow statement

A
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3
Q

Balance sheet as reported and restated

A
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4
Q

deferrals and accruals

A

Accruals: revenue earned or cost incurred before there is a cash inflow or outflows (AR and AP)

deferrals: cash inflows or outflows precede the recognition of revenues and expenses (prepaid expenses, unearned revenue)

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5
Q

How do you compute the wacc?

what steps to follow?

A

cost of equity * % of equity in capital structure + AFTERTAX cost of debt * % of debt in the capital structure

  1. determine capital structure
  2. estimate rd
  3. estimate re
  4. calculate wacc
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6
Q

how do you estimate cost of debt?

A

cost of debt reprents a company’s credit profile.

Assuming a company is already at target capital structure, the cost of debt is generally derived by blended yield of the company’s outstanding debt

If target capital structure is not, we could look at comparable companies, or databases which give implied credit ratings based on ratios.

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7
Q

What is cost of equity and how do you calculate it?

A

Re is the required annual rate that a company’s equity investors expect to receive. We compute it with the capital asset pricing model.

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8
Q

bridge to equity

A

eqv = EV - Debt + Excess Cash - NCI - Preferred stock

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9
Q

Talk about the capital structure of a company

A

going from lowest to highest risk:

1lien secure debt

2nd lien secured debt

senior unsecured debt

senior subordinated debt

subordinated debt

preferred stock

common stock

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10
Q

what sort of terms affect risk perceived by a debt investor?

A
  1. security
  2. seniority

**3. maturity

  1. coupon
  2. call protection**
  3. covenants
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11
Q

steps to follow in a multiples valuation approach?

A
  1. select the universe of comparable companies
  2. locate necessary financial information
  3. perform caculations on key statistics. ratios, and trading multiples of each
  4. benchamark the comparable companies
  5. determine valuation with either asset or equity based multiples
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12
Q

what are the steps in a dcf model?

A
  1. study the target and determine key perfomance drivers
  2. project key cash flows
  3. calculate wacc
  4. determine terminal value
  5. calculate present value and determine valaution
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13
Q

how do you calculate FCFO?

A

EBIT - op taxes + da - delta nwc - capex

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14
Q

what is net working capital?

A

non cash current assets - noninterest bearing short term liabilities

ca: ar, prepaid expenses, inventory

cl: ap, accrued liabilities, other CL

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15
Q

what are characteristics of a strong LBO candidate?

A
  1. strong CFs
  2. defensible mkt positions
  3. growth opportunities
  4. efficiency enhancement opportunities
  5. strong asset base
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16
Q

walk me through an LBO analysis

A
  1. locate necessary info
  2. build pre lbo model
    - historical and projected financial statements
  3. input transaction structure
    purchase price assumtptions, funding
  4. build post debt schedul
    - pro forma financial statements
  5. perform LBO analysis
    - return analysis under multiple scenarios
    - determine valuation
17
Q

what is enterprise value?

A

This is a measure of a company’s total value, often used as a more comprehensive alternative to market capitalization. Enterprise Value includes the market capitalization (i.e., the market value of equity), plus all outstanding debt, minority interest, and preferred shares, minus cash and cash equivalents. The idea is to calculate how much it would cost to purchase the entire business, free of its cash. EV is especially useful in mergers and acquisitions as it provides a clearer picture of a company’s valuation irrespective of its capital structure.

  • m&A
  • comparing firms with different capital structure
18
Q

what is equity value?

A

Also known as market capitalization, this is the total value of a company’s outstanding shares of stock. It is calculated by multiplying the current share price by the total number of outstanding shares. Equity Value represents the portion of the company’s total value that is attributable to shareholders.

-stock investing
- looking at the performance of an equity investment

ib (6 decks)

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