EV, EQ.V, cashflows and statement reclassification Flashcards
what is the bridge from EQ. Val to EN. val?
EN. val-net debt= EQ. val (net debt= financial debt- Cash and cash equivalents)
how is net debt usually computed?
using book value of debt, however you should use market value if possible
how is OPERATING net working capital computed?
ACC rec+ inventory- ACC payable
what are the 3 reclassified CF categories?
CF from operations, financing, non core-area.
what is the formula of FCFE starting from NI
NI+/- non-cash expenses/revenues - CAPEX -changes in NWC + net increase in debt funding - preferred stock dividends + net increase in preferred stock funding - change in required cash.
what is the formula of FCFO starting from FCFE
FCFE + interest expense - tax shield - net increase in debt financing - net increase in preferred stock financing + preferred stock dividends.
what is the FCFO formula starting from EBIT
EBIT - tax on EBIT +/- non-cash expense/revenue - increase in required cash - increase in NWC - CAPEX.
how to deal with operating lease expenses during valuation?
if the lease is not reported on the balance sheet, you estimate its value based on the PV of all future lease commitments discounted at Kd. you add this value as both debt and a lease asset to balance. you then remove operating lease expenses from the operating income and record depreciation expense on the newly registered lease asset. after that you need to add the lease expense back to financial expenses.
how to deal with R&D expense during valuation?
capitalize them as intangible assets. detract them from the EBIT calculations and add amortization on the newly created asset. after that you need to add back the tax shield to the NOPAT (as R&D expense is tax deductible) calculated as (R&D expense- new amortization)*tax rate. the difference between R&D expense and new amortization 2 items is the net change you apply to EBIT by capitalizing R&D. as a cashflow R&D should be considered CAPEX.
what are the different choices one can implement for tax rate? (including multinationals)
marginal (initial bias but good long term) or actual (must be adjusted towards marginal overtime and in perpetuity. for multinationals can use a weighted average of marginal tax rates, the marginal rate of the incorporation country or compute taxes separately for each country.
what is net capex
CAPEX- D&A
is CAPEX related to growth?
yes, only firms with positive net CAPEX can grow. assumptions must be linked
how to deal with lumpy CAPEX when estimating it?
use an historical average or estimate it based on a CAPEX/R&D industry ratio.
should you include firm acquisitions in CAPEX?
yes, but May ignore acquisitions if you think they have been done at fair value (i.e. zero NPV investment accounting
also for synergies) but be careful when estimating growth (growth from acquisitions should be excluded)
how to deal with lumpy or negative changes in NWC when estimating them?
take the change in NWC as an historical average % of net sales. negative changes in NWC are not sustainable in perpetuity and must be converged to 0.
