Module 2 Flashcards
Assets that related to activities that the firm conducts in order to execute its value proposition
operating assets
assets that the company could liquidate and then distribute the proceeds without affecting its value prop
financial assets
buffer cash held by the firm to mitigate the effects of shocks, such as temporary decline in revenue, payment disruptions or key customers
operating cash
cash that could be distributed without effecting operations
excess cash
How do you calculate operating cash?
lesser of 2% of total revenue or total cash and cash equivalents
Why would company A pay more than the FMV for company B?
Synergies
What does goodwill represent?
expected synergies that company A is willing to pay a premium on in order to get more revenue or cost saving
ROIC equation
Income on Invested Capital/Avg Invested Cap
accy ratio that compares the income investors earned on the invested capital to the amount they invested in the company
ROIC
present value of the expected future cash flows discounted at the waited avg cost of capital
value
Does how you fund a firm effect value?
No, less important but not not important
How is the value of a company effected?
by how it is operated
What is the most common KPI that tells us about value creation?
ROIC
obligations that arise as a result of pursuing the companies value proposition
Operation liabilities
obligations incurred to fund the operations
financial obligations
represents the size of the claim that investors have on the operations
Invested capital
Invested capital equation
Total stock holders equity + financial obligations - financial assets
equals the difference between operating assets and operating liabilities
net operating assets (NOA)
Net operation assets (NOA) and ____ are opposite sides of the same coin.
invested capital (IC)
When we evaluate a company’s ____, we learn about it’s ____.
net operating assets, invested capital
Net operating profit after tax formula (NOPAT)
Operating revenue - operating expenses - taxes on operating activities
What formula equals NOPAT
Income on invested capital (IIC)
As part of NOPAT, you have to calculate taxes on operating activities. How do you do that?
Net financial expense (Interest revenue and expenses) X Tax Rate = Tax Savings from net financial expenses. Then add the tax savings to total “tax expense”
Net operating assets (NOA) formula
Total operating assets - total operating liabilities
