L6 Flashcards
What is the main categorisation for investors and investments?
risk and return preferences
How do you work out the free cash flow of a project?
CFADS = EBITDA - taxes - capex +/- changes in working capital
How do you work out the free cash flow to equity?
= CFADS - debt service (principal +interest payable)
How do you work out the project IRR?
using the initial outlay of cash flow to pay for CAPEX and CFADs
How do you work out the equity IRR?
calcualted using the initial cash outlay for capex that is EQUITY FUNDED - no debt funded
and
free cash flow to equity (CFADS- debt service (principal +interest payable)
What do you compare project IRR to?
project IRR to WACC
NPV is positive (check this)
What do you compare equity IRR to?
expected return on equity
How does the relative valuation method compare to DCF?
market perceptions and moods better than DCF
advantage because
- objective is to sell a security at that price today e.g. an IPO
- investing on momentum based strategies
- better understanding of how the market is assessing future growth
How do you work out the price to earnings ratio?
P/E = market price per share/earnings per share
How do you work out the EPS?
- earnings per share in the most recent financial year
- earnings per share trailing 12 months (trailing PE)
- can be forecasted EPS next year (forward EP)
- forcasted earnings per share in X future years
What is the formula for EV/EBITDA multiple?
Earnings before Interest, Taxes and Depreciation
What multiple is prefered for cyclical manufacturing?
PR, relative PE
What multiple is preferred for growth firms?
PEG ration
expected P/E growth over X time
What is the preferred multiple for young growth firms w/losses?
revenue multiples
What is the preferred mulitiple for infrastructure
EV/EBTIDA
