Valuation Exam 1

What are investments?

assets

What is finacning?

claims

What is short term investmetn?

current assetes

what is short term financing

current lilaites

what is long term investments

fixed assets

what is long term finacing

long term finaicn

what pattern does this desicbe?

thisis the base and corkscrew method; you end up basing it on one day and then you use the sum funciotn at hebottom of hte corkserew

what are somethings to avoid while doing vluation?

avoid daisy chianing; instead refernce one cell multiple times trahter hthan multiple cells once

what is the differnece between top down forecasting and bottom up forcastign?

in top down forecasting you start wtih the macor envionemtn, industry condtiodns

in bottom up, you stsart fomr unit sales, oeprating expense dbuding staffing cpaiblties

What is the cash conversion cyycle formula?

CCC = DIO +DSO - DPO

What is the fofrmula for DIO

(Inventory / COGS * 365; inventory/cogs; so we take invneotry, noramlize it by our cost of goods sold; so it’s the price of invenotry/price of selling it and multiply by 365;

we baicaslly get a percentage of what our invneotry cost is for slaes and then multiply by 365 to sclae int odays

what % of my invneotry is getting sold, indepednt of the freigh and hanlding costs

What is fhe formula for DSO

Acc Rec/Sales; *365; what percenage of sales are we getting; from slae to cash colelction

What is the formula for DPO?

Acc Payable / COGS *365; What % of my acc payable goes into paying usppliers?; of my invntory how much of it elongs to suppliers?

what does cogs represtn

it represents invenotry pruchased and consuemd during teh year

What is the formula for this?

It is balance sheet “stcok“ / income statment flow; invnetory/cogs; ap/cogs; ar/sales

How does manamagnet want to handle the CCC?

It wants to reduce DIO and DSO while increasing DPO but not so much that they lose vneors;

What is the formula for enterprise value?

Equity Value + debt and equvilents + preferreed stock/hybrid calims + nci - cash and equavlinets

What is a nonctrolling interst

It is a signicnat but not majory interst, let’s say 10-50%

What is the aprpaised value? What is the equiry value?

Appraised value = enterpisr vlaue = 23,000; equity value = ev - debt = 23-18= 5

What is the EV of this car?

EV is 23; equity is 23-18+2= 20

Find the equity value

7820

When does equity value exceed enterprise value?

when a compnay has a lot of cash; beaces we add back cash wehn calcaluting enterpise value

Whats another term for equity value?

market cap

how do we claualte market cap/equity value?

shrae price * diluted shares outadnisn

what is the ifrst thing diluted hares outsanding consist of ?

basic shares outsntaidng

what is the second thing diluted shares outsnagind consti of ?

in the money option and warrnats

what is the thirsd part of diluted shraes outstnaidng?

in the moeney converitble securities

whats another word for exercise price?

strike price

what does in the moeny mean?

“In-the-money” options are options in which the exercise price < current stock price

LTM =

Latest 12 months

NTM

Next 12 months

TTM

Trailing 12 months

YTD

January to now

What does the WACC conssit of?

The cost equity;

the cost of debt

what'‘s the first other alternateive name for WACC?

MCC; marginal cost of cpiatal

What is another word for WACC?

Opportunity cost of capital

Where should the wacc be?

Since it’s thewighted aveage it’s in the middle

what is this value?

firms cost of debt; you know becasue it endsu p being lwoer than equity becuase it’s debt

what is this valu?

this is equity

how do we find the cost of debt?

look at the firm’s ebit

how do we find the cost of equity

look at residual (post debt) cash flwos

What is this?

It’s the risk free rate; y-intercept

why is this the optimal vlaue?

why is 0% debt risky in that graph?

becuase shraehodelr take all the risk

why does increasing debt on teh elft side lead to cheaper cpaital soruce in the form of debt?

interst has a tax sheild effect

why does value go down as dbet incresase

as the cost of dbet increases, interst payment icnreases, refincacningi diffiuclty icnreaseing bankrupty risk increass and idstress riks increse

why does equity get expensive on either end?

at 0% debt, its beacuse equity assumes all the bruden

at 75% debt, a small dip in asset vlaue can greatly expose the company and mean shraheodlesr might not get paid

what are the two parts of the capital strcuture?

market vlaue of equity; market value of debt

what are the three parts of the cost of equity cpaital

market risk freerate

market risk poremum

equity beta

what are the two parts of cost of debt capital

pre tax cost of debet

effective etax rate

what is the fomrula for this

risk free rate + (beta * risk preimum

what is the fomrula for this?

average debt yield + tax shiseld

what adidtional value can you add on?

small stock size preimum

are you finshed after finding the cost ofequity and the cost of dbet?

no; you want to scale by the share of equity % and the sclae of debt % as well

What is stage 1 DCF?

Projecting cashflows that are then discounted back to theprestn

what is the second stage of dcf?

calculatling the the termina lvalue whcih is docunsted back to therpsent

what are some waekness of dcf?

it’s extmrel tsnetiie to smal lchanges in inputs

terminal value can be disoted by multipes

What are the two types of FCF?

FCFE; LFCF; bsaiclly post leveager?

FCFF; UFCF; that’s wierd free cash flow to firmis unlvered;

What are some other wrods for EBIT?

NOPAT

EBIAT (earnings before interst, after taxes); unlevered net icneom

what is step 1 of 5 steps for unlevered free cash flow

EBIT

step 2

Ebit * (1-t)

what is the fomrla for NOPAT starting with EBIT

EBIT * (1-t)

what is the next part

EBIT * (1-t) + D/A

whati s the next part

EBIT * (1-t) + D/A ± WC Chcanes (i.e. increase in WC = minus, debcase = add; its like y2-y1 and so forth) - capex

what is the fomrla for levered free cahs flow

NI + D/A ± WC changse- cpaex +/ inflows from debt

what are not included when looking at calucalting working capital change evne thoguh they’re part of ca and cl?

cash and short term borriwngs

theey are non interste bearing currrent assets and laiblties

what are the two approache sor fdingin terminal value?

terminal ebitda approahc

perpetutuity growth approach

What is the mid year convetion

cash is genraeted daily but counted annually; so split thediffernce nad have it done at mideyaer

how does mid year convention affect prestn value?

it makes it higher beacuse thecompounding happens more

recurrent neural network (RNN); what is a key feature of it?

it has sequenital hidden states, or a memory layer, that tracks it; it sgood at the end and the begining; but nto eht mdidle why? euacse there a rea a lot opmcuations to bgo back

what are some characterisic of GCPR

they are called 7 pass transmembraen recpetors

what is the first of their 4 feautres?

feature 1: extracellar n termins

Feature 2

three extra celluar loofs

What does theextra celluar loops do?

they form the ligand binding pocket

feautre three?

three intera celluar lloops

what is the fourth and final part?

interalcellaur c termisnu

What are the divisons of their sascoited proteisn?

they are heterotrimeric rpteoisn with three subnuits—-alpha, beta, and gamma; why is sthis imfprant

how does it particate in sginalling?

it can produce seconadry messners like cAMP; what wer eht sepxiemrtns tha figured this out?

what are the two income approachs?

didvidne discount and dcf

what is the direct method?

it is the use of income based approaches, such dcf or ddm

what are the two steps of DCF model?

step 1: project cash flwos; this is wher yo utake the dcf and project

stesp 2: you find the terminal value and discount ot presnt (using multiple or grwoth revneu)

revnue factor 1?

market mix

revnue factor 2?

sales mix

revnue factor 3?

volume/rpice

part 1 of operating margin?

materails price

part 2 of operating margin?

staffing levels

part 3 of opearting margins?

wage rates

what are three parts of working capital

AR; inventory; ap

part 1 of capex?

plant life

part 2 of capex?

mainteince

part 3 of capex?

scale

what is the formula for perpetuiy model method?

FCFn * (1+g) /(wacc - g)

what are four adjusnt to ni that you make?

depciariotn; amorizaoitn; sbc; deeffered income taxes

when can ddm not be used?

it cna’t be used for companies withotu dividneds

it also can’t be used for hig hgrowth companie

whatdoes ddm use for its discount rate?

cost of equity

what mulitiple i sused in ddm?

p/e

whatis the formula for pay out ratio?

dividnes per share/ earnigns per share

what is the formula for EPS?

NI/shares