Investing Flashcards
Large v small cap
- Meaning
- Definition
- Risk
FCFE meaning
Fresh cash flow to equity
Present value formula
Break even v margin of safety
Margin of s example 5 variables
Variables for intrinsic per share
Contribution margin example
Fixed v variable expenses
Contribution v gross profit margin
Cont good and bad
Closest to 100 good less than 0 bad
FCFE Definition
Working capital
1. How to calculate
Amortization
Valuation Multiple Example
1. Types of financial data (5)
EBITDA variables (5)
EBITDA meaning
Synthetic Leases
Allows a co to
Other income expense
Contribution margin
Contribution margin use
Calculating gross margins
EBITDA problem
Can hide future liabilities in DA, if large equipment and plant purchases will have to be repeated in the future for example
SEC bars EBITDA per share, requires EBITDA reconciliation with net earnings
Amortization used to obscure software dev costs
One of the most common criticisms of EBITDA is that it assumes profitability is a function of sales and operations alone—almost as if the company’s assets and debt financing were a gift. To quote Buffett again, “Does management think the tooth fairy pays for capital expenditures?”
EBITDA History
During the 1980s, the investors and lenders involved in leveraged buyouts (LBOs) found EBITDA useful in estimating whether the targeted companies had the profitability to service the debt that was expected to be incurred in the acquisition. Since a buyout would likely entail a change in the capital structure and tax liabilities, it made sense to exclude the interest and tax expense from earnings. As non-cash costs, depreciation and amortization expense would not affect the company’s ability to service that debt, at least in the near term.
