Jefferies Flashcards
Return on Invested Capital
NOPAT/Invested Capital
Enterprise Value
Enterprise Value is the value of a company’s core business operations to ALL of the investors in the company.
Simple Formula: EQ Value+Debt+Pref Stock+Non Controlling Interest-Cash
However during my studies at John Hopkins, we used a diferent formula in excel
(PV of Operations) +
*PV of FCF +
*PV of Continuing Value
(Non-Operating Assets)
* Excess Cash and Marketable Securites+
Illiquided Invested and unsolidated subsidaries
=Enterprise Value
What are the three major financial statements?
- Income Statement
- Balance Sheet
- Cash Flow Statement
Common-Size Statements
Common-size statements allow analysts to compare a company’s performance with that of other firms to evaluate performance
Vertical Common-Size Income Statement
Expresses all income statement items as a percentage of revenues
Vertical Common-Size Balance Sheets
Express all balance sheet items as a percentage of Total Assets
Cross-sectional analysis
Known as relative analysis, compares a specific metric for one company with the same metric towards another company
Horizontial Common-Size
Horizontal common-size financial statements are often used to determine a trend with a company.
Dollar values are divided by their base year values
Activity Ratios
Measures how productive a company is using its assets and how efficiently it performs its everyday operations
Liquidity Ratios
Measures the comapny ability to meet its short-term cash requirements
Solvency Ratios
Measure a company ability to meet long-term debt obligation
Profitability Ratios
Measures a companies ability to generate and adequate return on invested capital
Valuation
Measures the quantity of an asset or flow (earnings) associate with ownership of a specific claim
Inventory Turnover Ratio
COGS/Avg. Inv
Days of Inventory on Hand
365/Inventory Turnover
Receivables Turnover
(Sales/Revenue)/Avg. Accounts Receivable
Days of Sales Outstanding
365/Receivables Turnover
Payable Turnover
Purchases/Avg. Trade Payables
Purchases= EI+COGS-Opening Inventory
Number Days of Payable
365/Payable Turnover
Working Capital Turnover
Revenue/Avg. Working Capital
Fixed Asset Turnover
Revenue/Avg. Fixed Assets
Total Asset Turnover
Revenue/ Avg. Total Assets
WACC
Average Cost of Capital required by investors
rdwd(1-T)+wprp+were
Terminal Value
Terminal Value is the estimated value of a company beyond the final year of the explicit forecast period in a DCF model
Perpetuity Approach
Applies a constant growth rate onto the forecasted cash flows of a company
(Final YR FCF)*(1+Terminal Growth Rate)/WACC-Terminal Growth Rate
or
Exit Multiple Approach
Final Year EBITDA*Exit Multiple
Current Ratio
Current Assets/Current Liabilities
Quick Ratio
Cash+ST Marketable Securities+Receivables/Current Liabilities
Cash Conversion Cycle
Days of Inventory on Hand+Days of Sales Outstanding- Number of Days Payable
Cash Ratio
Cash+ ST Marketable Securities/ Current Liabilities
NOPAT
Net Operating Profit After Taxes
Operating Profit (EBIT)*(1-Tax Rate)
Listing Liquidity Ratio
- Current Ratio
- Quick Ratio
- Cash Ratio
- Defensive Interval Ratio
Defensive Interval Ratio
Cash+ St Marketable Sec+Receivables/ Daily Cash Expenditures
This ratio measures how long the company can continue to meet its daily expense requirements from its existing liquid assets without obtaining additional financing.
List of Solvency Ratios
- Debt-to-Assets
- Debt-to-Capital
- Debt-to-Equity
- Financial Leverage
- Debt-to-EBITDA
Coverage Ratios
1. Interest Coverage
2. Fixed Charged Coverage
EBITDA
Earnings, Before Interest, Taxes, Depreciation and Amortization
EBIT(Operating Income)+ Depreciation & Amortization
EBITDA is used to determine the total earning potential of a company. Its also used as a comparable tool to compare companies of different sizes and capital structures.
List of Profitability Ratios
- Gross Profit Margin (Gross Profit/Revenue)
A high gross profit margin can be a reflection of high product prices (reflected in high revenues) and low product costs (reflected in low COGS) - Operating Profit Margin (Operating Profit/Revenue)
An operating profit margin that is increasing at a higher rate thatn the gross profit margin indicates that the company has successfully controlled operating costs. - Pretax Margin
(EBT/Revenue) - Net Profit Margin
( Net Profit/ Revenue)
Net Profit Margin shows how much profit a company makes for every dollar it generates in revenue
- Return on Assets (ROA)
(Net Income/Avg. Total Assets)
The higher the ROA, the greater the income generated by the company given its assets - Return on Equity (ROE)
(Net Income/Avg. Total Equity)
This ratio measures the rate of return earned by a company on its equity capital. Equity capital includes (minority equity, pref equity, and common equity).
Dow Dupont ROE Decomposition
1 way= Net Income/ Avg. SE
2 way= ROALeverage
(Net Income/Avg. Total Assets)(Avg. Total Assets/Average SE)
3 way= Net Profit Margin* Asset Turnover*Financial Leverage
5 way= (Net Income/EBT)Tax Burden Interest Burden* EBIT Margin* Asset Turnover* Financial Leverage
Valuation Ratios
- Price to Earnings
- Price to Cash Flow
- Price to Sales
- Price to Book Value
(1. Price per share/Earnings Per Share)
Key Elements of Value Creation
Increasing ROIC, & Increasing CashFlow and Revenue Growth,
