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CBV Module V - Corporate Finance > Chapter 1 - Business Planning & Financial Modelling > Flashcards

Chapter 1 - Business Planning & Financial Modelling Flashcards

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1
Q

What are the 10 elements of a business plan?

A
  1. Executive Summary
  2. Business Purpose
  3. Customers
  4. Competition
  5. Company Suppliers
  6. Marketing Plan
  7. Key Staff
  8. Forecasts
  9. Company Valuation
  10. Sources & Uses
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2
Q

What are the three types of formal business documents?

A
  1. Offering Memorandum
  2. Confidential Information Memorandum
  3. Business Plan
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3
Q

What is a Offering Memorandum?

A

An offering memorandum is a legal document that may be required under provincial securities law when raising debt/equity privately

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4
Q

What is a CIM?

A

Confidential info memorandum - in M&A this is used instead of an offering memorandum and is confidential to parties involved

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5
Q

What is a business plan?

A

a document used as a planning document as well as a summary of where the company stands - used to simply describe the company, not for offering others to invest

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6
Q

What are the 7 key elements that should be included in a financing proposal?

A
  1. description of the business - ie. history, financing, ownership, products and services, customers
  2. analysis of the industry
  3. resumes for management team
  4. description of business’ assets
  5. action-oriented business plan
  6. forward budgets
  7. relevant financial, product, and corp documents
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7
Q

what is the area of focus for the following types of investors?

  1. asset-based lender or secured term lender
  2. mezz lender
  3. equity investor
A
  1. future cash flow, ability to repay, quality of assets lending against
  2. a “good story”, growth plans, ability to generate cash flow, quality of mgmt
  3. strategic opportunity, a “good story”, quality of management
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8
Q

what is the reasonableness of a forecast predicated upon?

A

completeness and reasonableness of underlying assumptions used - analysis to support assumptions

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9
Q

what are the four main factors to keep in mind when evaluating how to forecast?

A
  1. time period - depends on industry and nature of business
  2. data patterns - monthly/quarterly/semi-annual
  3. costs - labour and other
  4. accuracy desired
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10
Q

on an amortization table with blended payments, what is calculated first? principal or interest?

A

Interest based on the total outstanding. Subtract to deduct remaining principal, and carry ending balance into next period

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11
Q

what are the four main categories of financial ratios?

A
  1. leverage
  2. liquidity
  3. efficiency
  4. profitability
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12
Q

what are the 4 main leverage ratios?

A
  1. debt ratio
  2. debt to equity
  3. interest coverage ratio
  4. debt service coverage ratio
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13
Q

what are the 2 main liquidity ratios?

A
  1. current ratio

2. quick ratio (also subtracts inv. and prepaid)

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14
Q

what are the 2 main efficiency ratios?

A
  1. inventory turnover

2. avg collection period

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15
Q

what are the 3 main profitability ratios?

A
  1. return on assets
  2. return on equity
  3. gross margin
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16
Q

what is important when evaluating comparable company’s and their respective ratios?

A

ratios should be used in comps of similar industries, similar to scale, and judged in context with other ratios as well (as opposed to simply comparing one)

17
Q

what are the three types of needs for companies in regards to financing?

A
  1. near-term needs
  2. long-term, high priority
  3. low priority
18
Q

what are some examples of short-term financing strategies ?

A

stretching payables, collecting A/R, investing short-term liquidity, short-term financing (revolver) or factoring receivables

19
Q

what are some examples of long-term high priority financing options?

A

usually needs are for acquisition, project, or a critical asset purchase - likely term debt to match useful life of the underlying asset/project

20
Q

what are some examples of low priority needs?

A

reimbursing debt raised by family or other shareholders, refurbishing company’s headquarters (discretionary)

21
Q

what are two important factors to consider when assessing a company’s capacity to issue debt or raise equity?

A

health of balance sheet and nature of the assets

22
Q

what are 4 questions to ask upon assessing debt capacity or equity capacity for a company?

A
  1. are there tangible assets?
  2. can these assets be used as collateral or can they be sold and moved in event of distress?
  3. what financial covenants can be met?
  4. what drives company’s cash flow for future repayment?
23
Q

what are some common issue areas to focus on in the balance sheet?

A
  • changes in inventory levels
  • potentially understated liabilities - unpaid vacation, warranties, healthcare and pension liability
  • overstated A/R, assess collectability
  • value and marketability of assets
  • intangibles and real value
24
Q

what are some common issue areas related to the income statement?

A
  • inventory accounting method (ie. FIFO will show higher margin)
  • consider method used for revenue recognition
  • consider quality of earnings (ie. small difference between cash flow and net income is stronger quality)
  • inclusion of personal expenses in private company financials
  • “window dressing” ie, a delay in R&D expenses or other necessary maintenance capex
25
Q

What are externalities in relation to investments?

A

Externalities are the effects of an investment on other factors besides the investment itself - cannabilization for example, of another revenue stream is potential

26
Q

what is the difference between “conventional” and “non-conventional” cash flows?

A

conventional - one outflow followed only by inflows

non-conventional - more than one outflow over the course of the series of cash flows

27
Q

what are the 7 most common investment decision making tools?

A
  1. IRR
  2. profitability index
  3. NPV
  4. payback period
  5. discounted payback period
  6. holding period return
  7. return on capital employed

CBV Module V - Corporate Finance (9 decks)

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