Technicals 2019 Flashcards
How do you derive FCF and why is it superior to net income
ADD
Why subtract cash in EV formula
DCF: interest revenue is not included in FCF, asset generating interest revenue cannot be included in EV
Transaction: purchasing company results in acquirer entited to cash, removes net cost of acquiring business
Why can’t you use EV/Earnings or P/EBITDA?
Mismatch of claimants and flows
-eg. EV/ Earnings: numerator is all claimants, denominator only represents equity claimants
TSM Method, what is it and walk me through it
add dilutive impact of outstanding warrants to # of shares outstanding.
What does minority interest represent and why add it back to EV?
Occurs when an acquirer buys a target but does not acquire all of the outstanding stock, extra calim not captured represented by minority interest
Minority interest included in EV becasue it is an additional claim on the firm
Why is EV/EBITDA a better measure of performance?
-What are some of the pitfalls?
neutralizes:
- different tax regimes
- differeing depreciation policies
- different mark-to-market procedures
- non recurring items
- capital strucutre differences
What happens to EV/EBITDA when you pay down debt with cash
Nothing:
-EV = equity + debt - cash
so:
EV = equity + debt (reduced) - (cash reduced) = orginial ev
Walk me through a DCf
- Project FCF
- Estimate Terminal value
- Calculate WACC
- Apply Wacc to FCF
- Sensitize
Investment with negative beta
Gold Bankruptcy advisory (?)
What would happen to a company’s EV if its AR turnover increased from 60 - 90 days
Will decrease:
Because: working capital efficiency decrease (AR turnover increasing means turning over AR more slowly)
Greater change in working capital
(Days A/R = avg. ar/ net credit sales) * 365
This will result in reduced value of UFCF
