IB Technicals Bible - Key Concepts, Power, Utilities & Energy

Comprehensive vocabulary flashcards covering investment banking technicals, 3-statement modeling, valuation methodologies, beta levering mechanics, and power, utility, and energy industry concepts.

Income Statement (IS)

A financial statement showing revenue and expenses over a specified period on an accrual basis, ending in net income.

Cash Flow Statement (CFS)

A financial statement that tracks cash changes across operating, investing, and financing activities; it begins with net income, adjusts for non-cash expenses and working capital, and ends in the net change in cash.

Balance Sheet (BS)

A financial snapshot at a point in time governed by $\text{Assets} = \text{Liabilities} + \text{Equity}$, where liabilities and equity serve as funding sources for the company's resources.

Unlevered Free Cash Flow (UFCF)

Discretionary cash flow generated from core operations available to all capital providers (debt, preferred, and equity) after funding operating expenses, working capital, and capital expenditures.

Levered Free Cash Flow (LFCF)

Discretionary cash flow remaining exclusively for equity shareholders after meeting all operating expenses, capital expenditures, and debt obligations.

Unlevered Free Cash Flow Formula (from EBIT)

$$\text{UFCF} = \text{EBIT} \times (1 - t) + \text{D\&A} - \text{Change in NWC} - \text{CapEx}$$

Net Operating Profit After Taxes (NOPAT)

Core operational profitability calculated after removing taxes but before considering financing costs: $\text{NOPAT} = \text{EBIT} \times (1 - t)$.

Enterprise Value (EV)

The total value of a company's core operating business attributable to all capital providers, which remains neutral to changes in capital structure.

Equity Value

The aggregate value of all assets a company possesses, attributable solely to common shareholders and dependent upon the company's capital structure.

Enterprise Value Bridge

$$\text{EV} = \text{Equity Value} + \text{Debt} - \text{Cash} + \text{Preferred} + \text{NCI} + \text{Finance Leases} - \text{Equity Investments}$$

Multiple Pairing Rule

Financial metrics situated above interest expense on the income statement represent cash flow to all capital providers and must pair with Enterprise Value; metrics situated below interest expense represent cash flow solely to equity holders and pair with Equity Value.

Control Premium

An additional amount (typically about $20\%$ to $30\%$) paid by an acquirer in precedent transactions to secure control of a target, causing precedent transaction multiples to generally rank highest.

Discounted Cash Flow (DCF)

An intrinsic valuation approach based on three key components: projected free cash flows for 5 to 10 years, terminal value, and a discount rate (WACC).

Perpetuity Growth Method

A terminal value calculation method formulated as $\text{TV} = \frac{\text{FCF} \times (1 + g)}{\text{WACC} - g}$.

Exit Multiple Method

A terminal value calculation method that applies a multiple to final-period operational performance: $\text{TV} = \text{Final-year EBITDA} \times \text{Multiple}$.

Weighted Average Cost of Capital (WACC)

The expected rate of return demanded across a company's entire capital structure, representing its total cost of financing: $\text{WACC} = K_d \times (1 - t) \times \%\text{Debt} + K_e \times \%\text{Equity}$.

Capital Asset Pricing Model (CAPM)

The formula used to calculate the cost of equity ($K_e$): $K_e = \text{Risk-free rate} + \beta \times \text{Market risk premium}$.

Beta

A measure of the systematic, non-diversifiable risk and volatility of a stock relative to the broader market, where a beta of $1$ moves in lockstep with the market.

Unlevered Beta

A measure of pure business risk stripped of debt and financial leverage: $\text{Unlevered beta} = \frac{\text{Levered beta}}{1 + (1 - t) \times \left(\frac{D}{E}\right)}$.

Levered Beta

A measure reflecting both underlying business risk and financial risk from leverage: $\text{Levered beta} = \text{Unlevered beta} \times \left[1 + (1 - t) \times \left(\frac{D}{E}\right)\right]$.

Power Plant Valuation (vs. Power Company)

Valued as a finite-life asset DCF with no perpetuity (terminal value equals residual or decommissioning value), often structured at the project level with project debt, whereas a power company is valued as a going concern.

Renewable Generation Contracted Revenue Formula

$$\text{PPA price} \times \text{MWh} = \text{MW} \times \text{capacity factor} \times 8{,}760$$

Spark Spread

The difference between market electricity prices and fuel costs (power price minus fuel cost), which dictates dispatch economics and margins for thermal power generation.

Regulated Utility Valuation Drivers

Key factors comprising rate base and rate base growth (CapEx plan), allowed versus earned ROE, regulator quality and lag, prevailing interest rates, and dividend policy.

Sum-of-the-Parts (SOTP) Valuation

A valuation approach applied when corporate segments feature distinctly different risk profiles and multiples, such as evaluating regulated utility operations on P/E and rate base while evaluating merchant generation on EV/EBITDA or DCF.

Cash Available for Distribution (CAFD) Yield

A specialized cash flow yield multiple applied alongside EV/EBITDA and EV/MW to value independent power producers (IPPs) and renewable assets.

Early-Stage Renewables Pipeline Valuation

A development-asset valuation formula: $\text{Pipeline Value} = \text{MW by stage} \times \text{probability of reaching operation} \times \text{value per MW (or project DCF)} - \text{development costs}$.

Net Asset Value (NAV) Mining Valuation

A valuation method applied to finite reserve assets like coal or gold mines (rejecting Gordon growth perpetuity) that runs a DCF across the mine's life, adds non-operating assets, and subtracts debt.

Debt Service Coverage Ratio (DSCR)

A cash flow coverage metric used by project lenders to determine the maximum borrowing capacity and size of project debt.

Capacity Factor vs. EBITDA Margin Ranking

Capacity factor ranks: $\text{Gas} > \text{Offshore Wind} > \text{Solar}$; EBITDA margin ranks: $\text{Solar} > \text{Wind} > \text{Gas}$ (due to zero fuel cost in renewables).

Solar Installed Cost Benchmark (2025)

The US utility-scale solar installed cost according to Berkeley Lab (2026 edition), recorded at about $\$1.69/\text{W (AC)}$ (about $\$1{,}690/\text{kW}$) or about $\$1{,}310/\text{kW (DC)}$.

Nuclear Reactor Baseload Mechanism

A generation process where nuclear fission heats water into steam to spin a turbine; operates with zero carbon emissions and a very high capacity factor.

The One Big Beautiful Bill Act

Legislation signed July 4, 2025, that terminates wind and solar PTC and ITC for projects starting construction after July 4, 2026, unless placed in service by December 31, 2027.

NextEra / Dominion Deal Structure

A transaction announced May 18, 2026, structured as all-stock at $0.8138$ NextEra shares plus about $\$360\text{m}$ in cash per Dominion share ($\approx \$67\text{bn}$ equity value, $\approx \$76$ per share, a $23\%$ premium), giving NextEra holders $74.5\%$ and Dominion holders $25.5\%$.