Chapter 1- Comparable Analysis

Question 1

What are four cases in which someone may use comparable analysis?

Answer 1

1.) Mergers and Acquisition
2.) IPO
3.) Investment decisions
4.) Restructurings

Question 2

What is the first requirement to comparable analysis?

Answer 2

Establishing a comparable universe.

Question 3

Why do bankers prefer to use Enterprise Value?

Answer 3

Bankers utilize enterprise value as a key multiple denominator due to the fact that EV represents equity and debt capital, therefore showing a truer value.

Question 4

What is the treasury stock method?

Answer 4

The treasury stock method is a way of calculating fully diluted shares outstanding that assumes all tranches of debt are exercised at the weighted average exercise price.

Question 5

Using the treasury stock method; how is net new shares calculated.

Answer 5

One must multiply the outstanding ITM instruments by the weighted average strike price, this figure must then divide it by the current market price.

This figure is the net new shares, it must then be subtracted by the amount of exercisable instruments there for giving us net dilution.