Capital Interview Experts Core Mastery Flashcards

VOCABULARY style flashcards covering accounting, valuation, DCFs, M&A, LBOs, and technical finance concepts based on the Capital Interview Experts transcript.

Stock Acquisition Method (Example Outcome)

If a company is purchased for $1000 cash with $1000 in fixed assets and $800 in liabilities (no write-ups), cash decreases by $1000, fixed assets increase by $1000, goodwill increases by $800, and liabilities increase by $800.

Goodwill (Calculation Logic)

An asset account created when the purchase price of a company exceeds its net fair value; for example, if a firm is worth $200 but bought for $1000, $800 of this asset is created.

PIK Debt

Payment-in-kind debt, where interest is added to the principal balance rather than being paid in cash.

Days Sales Outstanding (DSO)

A measure of the average number of days it takes for a company to collect payment after a sale has been made; calculated as $\text{DSO} = \left[ \frac{\text{AR}}{\text{Credit Sales}} \right] \times 365$.

Unlevered Free Cash Flow (UFCF)

Cash flow available to both debt and equity holders, calculated as: $\text{Revenue} - \text{COGS} - \text{Operating Expenses} - \text{Taxes Paid} = \text{NOPAT} + \text{D\&A} - \text{CapEx} - \text{Change in NWC}$.

Levered Free Cash Flow (LFCF)

Cash flow available specifically to equity holders after accounting for financial obligations, calculated as $\text{UFCF} - \text{Mandatory Debt Repayments} - \text{Tax-Adjusted Interest Expense}$.

Deferred Tax Liability (DTL)

An accounting entry representing taxes that are owed but not yet paid, often calculated as $\text{Write-up} \times \text{Tax Rate}$.

EBITDA Margin Formula

The ratio of EBITDA to total revenue, which can be derived from valuation multiples as $\frac{\text{EV/Sales}}{\text{EV/EBITDA}}$.

NOLs (Net Operating Losses) Discount Rate

These should be discounted using the cost of equity ($K_e$) because they do not benefit debtholders and only affect returns for equity holders via tax shields.

Operating Leverage

A measure of how a firm's costs are structured; higher leverage implies a greater proportion of fixed costs versus variable costs, meaning margins expand more significantly with revenue increases.

Beta of a Pre-market Drug

$\text{0}$, because movements are completely uncorrelated with the market.

Gordon Growth Method

A terminal value calculation method used when a business is cyclical or its size profile is too large (e.g., Apple) to be bought on a multiple.

Section 382 Limitation

A rule stating that acquired NOLs can only be used with a maximum annual constraint equal to the $\text{FMV of the acquired company} \times \text{Federal Long-Term Tax-Exempt Rate}$.

Rule of 72

A shortcut to estimate how long it takes for a value to double given a fixed annual rate of growth, expressed as $\frac{72}{r}$.

Rule of 114

A shortcut to estimate the time or rate needed for an investment to triple in value.

Rule of 144

A shortcut to estimate the time or rate needed for an investment to quadruple in value.

Equity Value (implied)

Calculated as $\text{Enterprise Value} + \text{Cash} - \text{Debt}$ (assuming no NCI or preferred stock).

Revenue Synergies

A type of M&A synergy involving cross-selling or other methods to increase the combined company's top-line.

Cost Synergies

M&A benefits derived from reducing redundant costs and achieving economies of scale.

MOIC

Multiple of Invested Capital, a performance metric for private equity investments calculated as $\frac{\text{Final Equity Stake}}{\text{Initial Equity Stake}}$.

YTM (Yield to Maturity) Components

A two-part calculation consisting of the annualized yield of the principal payment and the coupon payment yield.

Cash Conversion Time Formula

$\text{DSO} + \text{DIO} - \text{DPO}$.

Semiconductor Business Models

The three primary models are Integrated Device Manufacturing (in-house fabrication), Fabless (design only), and Foundries/Assemblies/Testers (manufacturing/wiring).

SaaS Golden Ratio

The ratio of Monthly LTV to CAC; a value of approximately $\text{3}$ is considered the ideal benchmark for valuation.

Initial Public Offering (IPO)

A process of going public by issuing new shares to the market, which raises capital but involves significant underwriting fees.

Direct Public Offering (DPO)

A process of listing existing shares for trade on a public exchange without raising new capital or paying significant underwriting fees.

Reverse Merger

A method for a private company to go public by acquiring control of an already publicly listed company.

SPAC

Special Purpose Acquisition Company, an alternative vehicle for taking a company public.