pillars of wall street - valuation fundamentals - enterprise value and equity value

Question 1

diluted shares outstanding

Answer 1

diluted shares = [basic shares] + [net new shares]

basic shares = # of shares currently trading in market place; found in 10k or 10q

net new shares = anything that can be converted into common stock incl. in the money stock options, warrants, restricted stock units, performance units, convertible debt, convertible preferred stock

net new shares result from convertible securities determined using treasury stock method (TSM)

Question 2

warrants

Answer 2

similar to options but usually attached to an equity or debt offering as a sweetener to the deal

Question 3

restricted stock units and performance units

Answer 3

given by companies to their highly-compensated employees in order to incentivize them

Question 4

convertible debt

Answer 4

debt that can later be converted to equity at a given share price

Question 5

convertible preferred stock

Answer 5

preferred stock that can be converted to common stock

Question 6

net new shares

Answer 6

net new shares = [market price - strike price] * [# of options] / [market price]

Question 7

equity value

Answer 7

aka market cap

equity value = [share price] * [fully diluted shares outstanding]

Question 8

preferred stock

Answer 8

form of equity that is senior to common stock but junior to debt

therefore it is a mezzanine financial instrument

has attributes of both common stock and debt

Question 9

non-controlling interest

Answer 9

a third party’s instrument in our company but the company owns more than 51% of the third party

NCI is equity, and it is capital in the business