Lecture 9

Question 1

What is Relative Valuation

Answer 1

Using comparable assets (publicly traded, similar cash flows, risks, growth potential)

Question 2

what is equity value

Question 3

what is enterprise value

Answer 3

marketcap + debt - cash

Question 4

what are multiples

Question 5

how does firms with different amounts of excess cash affect multiples (why)

Answer 5

ev/ebitda adjusts for differences

P/E ignores them (net income remains unchanged, therefore EPS is unchanged, therefore P/E is unchanged)

Question 6

how does firms with different financial leverage affect multiples (same total value) (why)

Answer 6

ev/ebitda is not affected (EV already includes the sum of debt/equity so a different balance makes no change)

p/e is distorted, complex relationship with leverage, can either increase or decrease

Question 7

how does firms with different capital intensity affect multiples (why)

Answer 7

ev/ebitda ignores

ev/ebit fixes problem

p/e adjusts (partially)

Question 8

how does firms with different accounting methods affect multiples (why)

Answer 8

ev/ebitda useful (if we know depreciation method is similar)

p/e distorted (earnings distorted by calculation of depreciation)

Question 9

what is p/e ratio

Answer 9

price of stock/ earnings per share

Question 10

what is earnings per share

Answer 10

(profit - dividends) / shares outstanding

Question 11

P/E Equity Value

Answer 11

Earnings x Comp P/E

short/short

Question 12

P/E Enterprise Value

Answer 12

(Earnings x Comp P/E) + Debt - Cash

(p/e dont care ab cash)

Question 13

EV/EBITDA Equity Value

Answer 13

(EBITDA x Comp EV/EBITDA) + Cash - Debt

(p/e dont care ab cash)

Question 14

EV/EBITDA Enterprise Value

Answer 14

EBITDA x Comp EV/EBITDA

long/long

Question 15

Acquisition Premium Definition