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MBA > Stock Pricing and Forecasting Cash Flows > Flashcards

Stock Pricing and Forecasting Cash Flows Flashcards

1
Q

Who are Angel Investors

A

First round Investors for startups

generally $50k to $400k

usually get stock and a seat on the board

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2
Q

What is private placement

A

Stock in a company that is not registered with the SEC

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3
Q

What is a Venture Capital Fund

A

Private Partnerships that invest in startups

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4
Q

what is a VC

A

Venture capitalist

Venture Capital Fund Manager

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5
Q

What are some advantages of going public

A

increase liquidity

founders can harvest wealth and diversify

raise corporate cash

establish a value

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6
Q

what are some disadvantages of going public

A

Increased reporting cost

increased disclosure requirements

reduces manager/owner control

could be valued “low”

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7
Q

what are the basic steps of going public?

A

select an investment bank to lead

file and S-1 with prospectus to SEC

Roadshow to go get investors “book building”

go public and sell shares to the investors

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8
Q

what are some capital raising decisions

A

how much to be raised

what type of securities - common stock, preferred stock, bonds

Competitive (highest bidder) or negotiable bidding

which investment bank to use

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9
Q

What are Free Cash Flows

A

Cash Flows through operating activities

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10
Q

What is NOPAT?

A

Net Operating Profit after taxes

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11
Q

How to Calculate NOPAT

A

EBIT * (1-TaxRate)

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12
Q

What are Operating Current Assets

A

Short Term Assets - Cash, Inventory, Accounts Receivable

NOT MARKET SECURITIES they are not used for “Operating”

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13
Q

What are Operating Current Liabilities

A

Short Term Liabilities - Accounts Payable and Accruals

NOT MARKET SECURITIES they are not used for OPERATING

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14
Q

What is NOWC

A

Net Operating Working Capital

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15
Q

What is Net Operating Working Capital (NOWC)

A

Operating Current Assets - Operating Current Liabilities

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16
Q

What is the NOWC Forumla

A

(cash + accounts payable + inventories) - (Accounts Payable - Accruals)

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17
Q

That is Total Net Operating Capital

A

NOWC + Operating long term assets

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18
Q

what are Operating Long-term Assets

A

Land, Buildings, Factories, Equipment

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19
Q

What is Total Investor Supplied Captial

A

Notes Payable + Long Term Bonds + Preferred Stock + Common Equity

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20
Q

What is Investor Supplied Operating Capital

A

Investors Supplied Capital - Short Term Investments

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21
Q

What is the Net Investment in Operating Capital

A

This Year Capital - Last Year Capital

22
Q

What are other names for Total Net Operating Capital

A

Operating Capital or just “Capital”

23
Q

What is the Free Cash Flow Formula

A

NOPAT - Net Investment in Operating Capital

or

NOPAT - Net Investment in Fixed Assets - Investment in NOWC

24
Q

what can you use Free Cash Flow for?

A

Paying Deptholders interest
Paying off debt
Paying dividends
repurchasing stock
buying short term investments or other non operating assets

= TOTAL FCF USES

25
Q

What is ROIC

A

Return on Invested Capital

26
Q

What is the ROIC Formula

A

NOPAT / Operating Capital

27
Q

what is the Operating Profitability Ratio (OP)

A

Percent of profit per dollar of sales

NOPAT / Sales

28
Q

What is the Capital requirement ratio? (CR)

A

How much operating capital is tied up in generating a dollar of sales

Total Net Operating Capital / Sales

29
Q

What is Market Value Added (MVA)

A

Market Value of stock - Equity capital supplied by investors

30
Q

What is Economic Value Add (EVA)?

A

Managerial Effectiveness

NOPAT - (Total Net Operating Capital)*(WACC)

31
Q

what is EVA In terms of ROIC

A

Total net operating Capital * (ROIC - WACC)

32
Q

What is the FCF Valuation Model definition?

A

PV of Expected cashflow, when discounted at the WACC

33
Q

what are the two sources of value?

A

Operations

non operating assets

34
Q

What is the Value of Operations Formula?

A

Vop = (FCF1) / (1+WACC1) + (FCF2) / (1+WACC2) … to infinity

35
Q

What are non-operating assets?

A

short term securities

36
Q

What is the Value of Operations (for perpetuity) formula?

A

FCF/WACC

37
Q

What is the intrinsic value

A

Value of operations + Value of Short Term Investments

38
Q

What is the intrinsic value model

A

Intrinsic Value - all debt - preferred stock

39
Q

what is the intrinsic stock price?

A

intrinsic value of equity / number of shares

40
Q

What is the Value of Operations Formula for constant growth?

A

FCF (at beg. of const growth) / (WACC - growth rate)

Cannot be used if Growth Rate is Bigger than WACC

41
Q

What is the FCF Formula if the constant growth rate starts today

A

FCF(today)(1+growth rate) / (WACC-growth rate)

42
Q

What is a forecast horizon?

A

the last year that change is not constant

43
Q

what is the horizon value

A

the value from the first year of constant growth and beyond

44
Q

What is the total value of a company?

A

the forecast horizon + the Horizon Value

45
Q

What are the key inputs for FCF

A

Recent Sales
Recent Total net operating capital
Projected Sales Rate
Projected Operating profitability ratio
projected capital requirements ratios
WACC

46
Q

What are Value Drivers

A

Things Managers can influence strategically

growth rates, operating profitability, capital requirements, and Cost of Capital

47
Q

What is Value-Based Management

A

Using FCF to identify value drivers

48
Q

What things help the future value?

A

Increased ROIC (higher profitability or better capital utilization)

Reduction in WACC

49
Q

What are retained earnings

A

earnings not paid to shareholders, that can be used to reinvest in the business, or keep as cash

50
Q

is Negative FCF bad?

A

it depends. temporarily, no.

confirm with ROIC

51
Q

How do you you use ROIC and FCF to determine if negative FCF is bad?

A

negative FCF is okay if ROIC>WACC

MBA (50 decks)

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