SMIF

SOFR

"Secured Overnight Financing Rate" In 2022, the U.S. Congress passed legislation to make SOFR the official replacement for LIBOR in the United States.

Crude Oil?

$78 indicate trend

How would you invest $10 million?

***** Always ask for the investor's goals first. Are they looking to have big capital gains over 30-40 years? Are they looking for tax-free retirement income? What types of assets interest them? Diversify my portfolio until I get a Beta around 1 which is equivalent to the volatility of the stock market A beta value that is less than 1.0 means that the security is theoretically less volatile than the market.

What is SMIF's structure?

- 2 pitches per semester (1 bull and 1 bear" per sector - periodic assigned holding report and updated valuation

Tell us about a market event happening in APAC, EMEA, LATAM.

- If people try to capitalize on the growth of Asia and the long-term consumption in some of the faster growing Asian economies, Japan is a local place that can be plugged into the rest of Asia - Warren Buffett talks about how the Japan market is cheap right now, which has led to many investors to buying in China - Foreign investors are buying up Japanese hotels at a scale unseen in almost a decade, as the nation's tourism recovery, weak currency and low interest rates drive appetite from abroad. - Overseas buyers were responsible for 47% of the 494.3 billion yen ($3.7 billion) invested in hotel deals that closed in the past 12 months — the highest proportion since 2014

What is SMIF's investment strategy?

- Long-only, U.S. equity, value-oriented strategy - Driven by strong convictions and rigorous security selection - Performance benchmark S&P 500 Total Return- Currently no fixed income, max cash of up to 5%

How does a $10 increase in depreciation affect the 3 financial statements?

1. Income Statement: Operating Income would decrease by $10 and assuming a 20% tax rate, Net Income would decrease by $8. 2. Cash Flow Statement: The Net Income at the top decreases by $8, but the $10 Depreciation is a non-cash expense that gets added back, so overall Cash Flow from Operations increases by $2. There are no changes elsewhere, so the overall Net Change in Cash goes up by $2. 3. Balance Sheet: Plants, Property & Equipment goes down by $10 on the Assets side because of the Depreciation, and Cash is up by $2 from the changes on the Cash Flow Statement. Overall, Assets is down by $8. Since Net Income fell by $8 as well, Shareholders' Equity on the Liabilities & Shareholders' Equity side is down by $8 and both sides of the Balance Sheet balance. Always go in this order: This is so you can check yourself at the end and make sure the Balance Sheet balances. Remember that an Asset going up decreases your Cash Flow, whereas a Liability going up increases your Cash Flow.

What do you look for when investing?

1. Research the company: find what sector they are in, how long they have been around, board of directors. Understanding the basics of a company goes a long way toward figuring out if the business is likely to have staying power and offer returns. 2. Look at the Company's Price-to-Earnings Ratio: The P/E ratio is basically a measure of how much investors are willing to pay for each dollar of annual earningsThe P/E ratio is important because it provides a measuring stick for comparing whether a stock is overvalued or undervalued. A high P/E ratio could mean that a stock's price is expensive relative to earnings and possibly overvalued. 3. Estimate a Company's Risk by Its Beta: Look at a stock's beta to get an idea of how volatile it's been. In general, beta measures volatility of an individual stock against the volatility of the S&P 500.Beta < 1 is low risk Beta > 1 is high risk.A stock with a high beta that's been outperforming the S&P 500 could potentially offer higher returns in a shorter period of time. That could mean good growth for your portfolio. However, higher returns also mean there is more risk.If you're looking for more stable potential with a company that has been in line with S&P 500 performance, something close to 1 can be a good choice. A stock with an especially low beta that has underperformed the S&P 500 has lower risk. But that means you won't make as much money as with a stock with higher beta. Still, you also have less chance of losing all of your money due to volatility. 4. Examine the Company's Dividend History & Yield: A high dividend yield means you could potentially see solid income from a stock. However, it's important to be wary of yields that seem too high. In some cases, higher dividend yields are used to attract investors to a company that's experiencing trouble. A dividend yield between 2% and 5% is good without taking on undue risk.Another strategy is to look for dividend aristocrats. These are stocks that have increased their dividend payout each year for at least 25 years — including during market crashes and recessions. With these stocks, the dividend yield might not be as high as with other stocks. But you can be reasonably sure that the companies are stable over the long term. Also, there's a somewhat lower chance of a dividend cut with these companies. 5. P/B ratio: The price-to-book ratio or P/B ratio measures whether a stock is over or undervalued by comparing the net value (assets - liabilities) of a company to its market capitalization. To a value-seeking investor, a company that trades for a P/B ratio of 0.5 is attractive because it implies that the market value is one-half of the company's stated book value. Value investors often like to seek out companies with a market value less than its book value in hopes that the market perception turns out to be wrong. 6. D/E ratio: The debt-to-equity ratio (D/E) is a stock metric that helps investors determine how a company finances its assets. The ratio shows the proportion of equity to debt a company is using to finance its assets.A low debt-to-equity ratio means the company uses a lower amount of debt for financing versus shareholder equity. A high debt-equity ratio means the company derives more of its financing from debt relative to equity. Too much debt can pose a risk to a company if they don't have the earnings or cash flow to meet its debt obligations.As with the previous ratios, the debt-to-equity ratio can vary from industry to industry. 7. FCF: Free cash flow shows how efficient a company is at generating cash and is an important metric in determining whether a company has sufficient cash, after funding operations and capital expenditures, to reward shareholders through dividends and share buybacks.Free cash flow can be an early indicator to value investors that earnings may increase in the future, since increasing free cash flow typically precedes increased earnings. If a company has rising FCF, it could be due to revenue and sales growth, or cost reductions. In other words, rising free cash flows could reward investors in the future, which is why many investors cherish free cash flow as a measure of value. When a company's share price is low and free cash flow is on the rise, the odds are good that earnings and the value of the shares will soon be heading up. 8. PEG ratio: The price/earnings-to-growth (PEG) ratio is a modified version of the P/E ratio that also takes earnings growth into account. The P/E ratio doesn't always tell you whether or not the ratio is appropriate for the company's forecasted growth rate.The PEG ratio measures the relationship between the price/earnings ratio and earnings growth. The PEG ratio provides a more complete picture of whether a stock's price is overvalued or undervalued by analyzing both today's earnings and the expected growth rate.Typically a stock with a PEG of less than 1 is considered undervalued since its price is low compared to the company's expected earnings growth. A PEG greater than 1 might be considered overvalued since it might indicate the stock price is too high compared to the company's expected earnings growth. 9. Their financial statements and quarterly earnings 10. Current events/competitors/news affecting the stock

What is the current Federal CORPORATE tax rate/US federal tax rate?

21%

What is the current federal INTEREST rate/federal FUNDS rate?

4.83%

Can you walk me through a DCF?

A DCF values a company based on the Present Value of its Cash Flows and the Present Value of its Terminal Value. First, you project out a company's financials for 5-10 years using assumptions for revenue growth, expenses and Working Capital; then you get down to Free Cash Flow for each year, which you then sum up and discount to a Net Present Value, based on your discount rate - usually the Weighted Average Cost of Capital. Once you have the present value of the Cash Flows, you determine the company's Terminal Value, using either the Multiples Method or the Gordon Growth Method, and then also discount that back to its Net Present Value using WACC. Finally, you add the two together to determine the company's Enterprise Value.

What type of valuation is an LBO?

A leveraged buyout (LBO) valuation method is a type of analysis used for valuation purposes. The alternative sources of funds are analyzed in terms of their contribution to the net IRR. This analysis is carried out in order to project the enterprise value of a company by the financial buyer that acquires it.

What is depreciation?

A systematic expensing of an asset based on the asset's estimated life

Tell me how a $100 increase/decrease in AR affects the 3 financial statements

Accounts Receivable: when a company sells on credit to customers. Income Statement: No changes on the Income Statement since it is not a revenue yet. Cash Flow Statement: Accounts Receivable goes down by $100 under Cash flow from operations which is an increase of $100 in cash. Balance Sheet: Cash is up by $100 and Accounts receivable balance is down by $100 which makes everything balance. (opposite for decrease in A/R)

What's the difference between accounts receivable and deferred revenue?

Accounts receivable has not yet been collected in cash from customers, whereas deferred revenue has been. Accounts receivable represents how much revenue the company is waiting on, whereas deferred revenue represents how much it has already collected in cash but is waiting to record as revenue.

If I were to write down one word to remember you by what would it be?

Adventurous: Ever since I was little, I've always wanted to try new things and push myself out of my comfort zone. When starting to apply to colleges, I originally never was thinking about anything out of state, but here I am. I'm never scared to take risks and this can be an attribute to me in the investment banking industry because in order to gain returns you have to take risks.

Why do we have to un-lever and re-lever Beta?

Again, keep in mind our "apples-to-apples" theme. When you look up the Betas on Bloomberg (or from whatever source you're using) they will be levered to reflect the debt already assumed by each company. But each company's capital structure is different and we want to look at how "risky" a company is regardless of what % debt or equity it has. To get that, we need to un-lever Beta each time. But at the end of the calculation, we need to re-lever it because we want the Beta used in the Cost of Equity calculation to reflect the true risk of our company, taking into account its capital structure this time.

What does alpha mean?

Alpha is sometimes casually referred to as a measure of outperformance, meaning the alpha is the difference between what an asset returned and what its benchmark returned.

SMIF Current Holdings

Alphabet: Technology Apple: Technology Bank of America: Financial The Blackstone Group: Financial Broadcom: Technology Coca-Cola: Consumer Staples John Deere: Industrials Dollar General: Consumer Discretionary Exxon Mobil: Energy Intuit: Technology Labcorp: Healthcare Microsoft: Technology Nextera Energy: Energy Starbucks: Consumer Discretionary Disney: Consumer Discretionary

Theoretically, should your cost of debt ever be higher than your cost of equity?

Although it is possible for your cost of debt to be higher than your cost of equity, theoretically, no. Typically, the cost of equity exceeds the cost of debt. The risk to shareholders is greater than to lenders since payment on a debt is required by law regardless of a company's profit margins. Instance where cost of debt is higher: that the company is lending capital from others to finance its growth

What would make you a great SMIF analyst?

As a SMIF analyst, I will be assigned with researching various stocks within a certain industry along with my peers. This requires extensive research and market knowledge, as well as great public speaking skills. Through my VP of PD position in Pi Sigma Epsilon, I can apply the research and presentation skills that I have acquired to exhibit clarity, confidence, and thoroughness within stock pitches. Although I am not in a plethora of terry organizations and have a lot more to learn , I exhibit the grit, hard work, and dedication for fulfilling my role as an analyst amongst the other selected individuals.

Bull Market vs Bear Market

Bear: a market in which prices are falling, encouraging selling. Bull: a market in which share prices are rising, encouraging buying (indicates economic growth)

How do you calculate Beta?

Beta = Covariance of stock return and market return / Variance of market return A beta of 1 indicates that the stock moves in line with the market, a beta of less than 1 indicates that the stock is less volatile than the market, and a beta of more than 1 indicates that the stock is more volatile than the market.

What is Beta?

Beta is a measure of the volatility of an investment compared with the market as a whole. The market has a beta of 1, while investments that are more volatile than the market have a beta greater than 1 and those that are less volatile have a beta of less than 1. Beta is used in the CAPM equation to calculate the equity return portion of WACC for a DCF.

Why could both EV / Cash flow and P / Cash flow be appropriate?

Both EV/Cash Flow and P/Cash Flow ratios can be appropriate for different situations, depending on the specific circumstances of the company being analyzed. EV/Cash Flow is a valuation metric that compares a company's enterprise value (EV) to its cash flow from operations. It is used to determine whether a company is undervalued or overvalued relative to its operating cash flows. The EV/Cash Flow ratio takes into account a company's debt and cash position, as well as its cash flow generation ability. This ratio is often used by analysts to compare companies within the same industry, as it provides a measure of the relative value of a company's cash flows. On the other hand, P/Cash Flow is a valuation metric that compares a company's stock price to its cash flow from operations. It is used to determine whether a company's stock is undervalued or overvalued relative to its operating cash flows. The P/Cash Flow ratio is often used by investors to compare companies across different industries, as it provides a measure of the relative value of a company's cash flows per share.In general, both ratios are appropriate for different purposes. EV/Cash Flow is more appropriate for analyzing the overall value of a company and comparing it to its peers in the same industry. P/Cash Flow is more appropriate for analyzing the value of a company's stock and comparing it to other stocks in different industries. Both ratios provide insight into a company's cash flow generation ability and can help investors and analysts make informed investment decisions. It's worth noting, however, that no single ratio should be used in isolation when analyzing a company. It's important to consider multiple metrics and take into account the broader economic and industry-specific factors that may impact a company's financial performance.

What is CAPM?

Capital Asset Pricing Model It is a financial model that calculates the expected rate of return for an asset or investment. A stock's expected performance is based on its beta (risk) compared to that of the stock market. More risk : more expected return.

Key Individuals for SMIF

Chairman: Allison McLeod Board of Trustees: Matt Gates Larry Cummings Eric Huff Faculty Advisor: Johannes Kohler Current Exec: Catherine Kight, Luke Daniel, Madi Grosse, Jack Jurgovan

Why is IRR important?

Companies use IRR to determine if an investment, project or expenditure was worthwhile. Calculating the IRR will show if your company made or lost money on a project. The IRR makes it easy to measure the profitability of your investment and to compare one investment's profitability to another.

What are the main two/three ways of valuing a company?

Comparable Companies Precedent Transactions Discounted Cash Flow Analysis.

WACC is the discount rate for

DCF

What valuation methods does SMIF focus on?

DCF and comparable valuation

Would you rather use EBIT or EBITDA?

EBITDA is often preferred over EBIT by companies that have invested heavily in tangible or intangible assets, and therefore have high annual depreciation or amortization costs. Those costs reduce EBIT as well as net income.EBITDA will state a higher amount of earnings, which is more attractive number.EBIT, however, is important measure of a firm's operating efficiency. Because it does not take into account indirect expenses such as taxes and interest due on debts, it shows how much the business makes from its core operations.

Can you tell us about a time that you failed and what you learned from it?

Earlier in the school year, I applied to Atlas, got the interview, and was rejected. The interview process was a huge learning curve for me, as I had no guidance or any idea what was expected of me. Although, through this rejection, I asked for feedback, and used many resources to learn how to network, interview, and more. This led me to becoming the VP of PD for PSE and I couldn't be happier.

What does EBITDA stand for?

Earnings before interest, taxes, depreciation, and amortization. This is usually useful in analyzing and comparing profitability.

How do you calculate FCF?

FCF = EBIT - Taxes + Depreciation - Capex - Net Working Capital OR (Sales - Expenses - Depreciation) (1-TR) + Depreciation - change in net working capital - change in PPE

Why did you decide to get into finance?

Finance has always been a career that I was interested, as my mom works at a bank and I love problem-solving, however, I went through many phases of wanting to pursue of a different career path. After attending UGA, I discovered how amazing Terry is and this furthered my research and interest in the finance industry.

SMIF Funding and Mission

Funding: - SMIF is performing better than S&P Index - It was founded in 2007 with an initial gift of $100,000 from Darren and Pam DeVore - Reached a total gifted amount of $249,795 through additional gifts from alumni - Contribution by the UGA Foundation of $750,000 in 2015 Mission: - To grow our portfolio as a long-term endowment asset of the Terry College of Business - To provide a hands-on experience in security valuation and portfolio management - To promote Terry and provide networking ties across a variety of different industries

What to say if you don't know the answer?

Honestly, I don't know but this is my best shot......answer the question when they tell you the answer...... That does ring a bell, and I will review and refresh my knowledge on that topic.

What is covariance?

How two sets of variables behave in relation to each other

What is something that's not on your resume that you would want us to know?

I am an aspiring entrepreneur. I love seeing something small amount to something so much more. I started my own clothing business, a jewelry business, and even started to create my own drop shipping website throughout high school, but once I got to college, I couldn't find the time to balance everything. I am very creative and love trying new things.

What sector are you most interested in and why?

I am most interested in the TMT or technology, media, and telecom sector. I've always been interested in the new and upcoming innovations ever since I got an iPhone in 6th grade. I am very tech-savvy and everyone's go to for advice or help with their electronics. TMT is definitely a very volatile sector, however, uncertainty is what makes investing more interesting. I am particularly interested in AI, as it is new and upcoming. I am excited to see what impacts that it will make to the markets and our everyday lives in the future, as right now it is very risky.

Tell us a time you took a huge risk.

I took a huge risk when I decided to come to Georgia. It was a school far away from home and I initially did not want to go out of state. Coming to Georgia was a huge culture shock for me, but I perservered and made so many great friends and pushed myself out of my comfort zone.

Tell us about a company you've been following.

I've been following a lot of the AI companies, such as C3Ai, etc. because they are up and coming. C3Ai was initially listed on the NYSE in December 2020 and has fallen since then, however, with the recent AI advancements, I believe it will be a great stock to invest in in the near future.

As you are creating a DCF you notice that your sales growth rate is far outpacing your capex growth rate. Tell me how this could be a problem and tell me how it may not be an issue.

If you are creating a Discounted Cash Flow (DCF) analysis and you notice that your sales growth rate is far outpacing your capex growth rate, it could potentially be a problem because it could indicate that the company is not investing enough in its future growth. On one hand, if the company's sales are growing at a rapid rate, but the company is not investing enough in its capex to support that growth, it could lead to operational inefficiencies and potentially limit the company's ability to sustain its growth over the long term. This could result in a decline in the company's stock price, as investors may become concerned about the company's ability to generate future cash flows. However, on the other hand, it may not be an issue if the company is experiencing a period of rapid growth that does not require significant capital expenditures. For example, if the company is experiencing rapid sales growth due to a new product launch or a shift in consumer behavior, it may not require significant capital expenditures to sustain that growth. In this case, the company may be able to generate strong cash flows and sustain its growth without investing heavily in capex. In addition, it's important to note that a DCF analysis is based on assumptions and estimates, and there may be other factors that impact the company's cash flows that are not captured in the analysis. For example, changes in competition, changes in the regulatory environment, or shifts in consumer preferences could all impact the company's growth prospects and cash flows. Therefore, it's important to conduct a thorough analysis of the company's financials and business operations to determine whether a rapid sales growth rate relative to capex growth rate is a problem or not.

Why would you use Gordon Growth rather than the Multiples Method to calculate the Terminal Value?

In banking, you almost always use the Multiples Method to calculate Terminal Value in a DCF. It's much easier to get appropriate data for exit multiples since they are based on Comparable Companies - picking a long-term growth rate, by contrast, is always a shot in the dark. However, you might use Gordon Growth if you have no good Comparable Companies or if you have reason to believe that multiples will change significantly in the industry several years down the road. For example, if an industry is very cyclical you might be better off using long-term growth rates rather than exit multiples.

What is debt?

In finance, debt refers to an amount of money that is borrowed by an individual or organization with the agreement to repay it over time, usually with interest. Debt can be used for a variety of purposes, such as funding capital expenditures, financing operations, or managing cash flow.Debt can be issued in various forms, such as bonds

Underwriting an IPO

In the securities market, underwriting involves determining the risk and price of a particular security. It is a process seen most commonly during initial public offerings, wherein investment banks first buy or underwrite the securities of the issuing entity and then sell them in the market.

How does a $10 increase in deferred revenue affect the three financial statements?

Income Statement: No change since deferred revenue is not recognized unless it is earned. Cash Flow Statement: Cash from operating activities goes up by $10, which increases net cash flows by $10 Balance Sheet: Liabilities go up by $10 since deferred revenue is not recognized as a cash asset until it is earned.

A company issues $100 in stock based compensation. How does this affect the three financial statements?

Income Statement: - Additional Expense because it's tax-deductible and a current expense - Pre-tax Income falls by $100 and Net Income falls by $80 assuming a 20% tax rate Cash Flow Statement: - Net Income is down by $80 but add back stock-based compensation of $100 (Non-cash charge) - Overall $20 increase in cash Balance Sheet: - Cash is up $20 on the Assets side. - Common stock is up $100 but RE is down $80 --> SE goes up by $20 - Both sides balance

Why does investing interest you?

Investing is like starting a business..... seeing something small amount to hopefully so much more. During COVID, I started my own clothing business, where I designed prints on my iPad to print onto clothing. When I started selling, it was slow, but eventually amounted to around earning thousands of dollars in revenue. This, along with the intellectual challenge that comes with investing, stimulated my interest in investing.

Is cost of equity or cost of debt more expensive?

It depends on the situation. Cost of debt can be higher in relevance to a bankruptcy as debt holders are required to be paid what they bought the debt for, while stock holders may not be paid in the event of a bankruptcy. In general, however, the cost of equity tends to be higher than the cost of debt because equity investors require a higher return to compensate for the additional risk they are taking on. Equity investors are last in line to receive payment in the event of a company's bankruptcy or liquidation, while debt investors have priority in receiving repayment. This means that equity investors bear more risk and require a higher return to compensate for that risk.

What is investment banking?

It is a financial career that has 3 main types of activities: 1. Helping corporate customers obtain funding by selling securities such as stocks and bonds to investors 2. Providing advice to corporate clients on strategic transactions such as mergers and acquisitions 3. Trading debt and equity securities for customers or for the firm's own account Investment banks are best known for their work as intermediaries between a corporation and the financial markets. That is, they help corporations issue shares of stock in an IPO or an additional stock offering. They also arrange debt financing for corporations by finding large-scale investors for corporate bonds.

What type of valuation is a liquidation analysis?

It is an asset-based method. The liquidation value is obtained by subtracting company's liabilities from its assets.Liquidation analysis is a type of valuation that estimates the value of a company's assets in a hypothetical liquidation scenario, where the company's assets are sold off and the proceeds are used to pay off its debts and other obligations. It is often used in distressed or bankruptcy situations, where a company's assets may be sold off at a discount.

What is the Fed?

It is the central bank of the United States. The have control over interest rates and their dual policies include monitoring and curbing inflation and lowering the unemployment rate. In their past three meetings, they have continued to raise interest rates to curb inflation. Although inflation is getting lower it is still too high.

Tell us a recent news story you read about.

Jack Teixeira, a Massachusetts Air National Guardsman unlawfully took and shared a lot of highly classified intelligence documents in a security breach that has exposed significant vulnerabilities in the way the U.S. retains some of its most closely held secrets. - arrested and is being charged - exposed these secrets through a discord forum that was created "to discuss geopolitical affairs and current and historical wars - spread information that provided details about the war in Ukraine, intercepted communications about U.S. allies such as Israel, South Korea and Egypt, and details of American penetration of Russian military plans, among other topics. Officials have said the leak is likely to have an impact on U.S. national security worldwide. Josh Harris Strikes $6 Billion Deal for NFL's Washington Commanders - The $6 billion price tag makes the Commanders far and away the most expensive US sports franchise purchase on record. - It eclipses the $4.65 billion that Rob Walton, a member of the Walmart Inc. dynasty, spent to acquire the NFL's Denver Broncos last year. - Harris's group includes Blitzer, Rales and Magic Johnson AI ChatGPT Can Decode Fed Speak, Predict Stock Moves From Headlines - First wave of research using AI chatbot in finance is arriving - Fed staff find the tech can decipher dovish, hawkish language - Two new papers have been published this month that deployed the artificial intelligence chatbot in market-relevant tasks — one in deciphering whether Federal Reserve statements were hawkish or dovish, and one in determining whether headlines were good or bad for a stock. - ChatGPT aced both tests, suggesting a potentially major step forward in the use of technology to turn reams of text from news articles to tweets and speeches into trading signals. Dominion Voting Systems' $1.6 billion defamation lawsuit against Fox News is set to begin Tuesday. - Claiming Fox News spread false rumors about rigging the 2020 election

Who is the fed chairman? What about the one before him?

Jerome Powell (2018-present) Janet Yellen (2014-2018) Ben Bernanke (2006-2014) Alan Greenspan (1987-2006) Paul Volcker George William Miller

Tell me about a time you worked on a team.

Last semester, the other executive board members and I in Operation Smile Club put together a cycling fundraiser that was a part of an international campaign, Cycle for Smiles. We put our heads together to decide where the event would be, how we would market it, what the event would entail, and more. It is always more helpful when working in a team to get as much input as you can, but of course there was disagreements and differing opinions. We all came together in the end to raise over $8,000 for cleft lip and cleft palette surgeries.

Let's say that you use Levered Free Cash Flow rather than Unlevered Free Cash Flow in your DCF - what is the effect?

Levered Free Cash Flow gives you Equity Value rather than Enterprise Value, since the cash flow is only available to equity investors (debt investors have already been "paid" with the interest payments).

Levered Beta vs Unlevered Beta

Levered beta measures the risk of a firm with debt and equity in its capital structure to the volatility of the market. The other type of beta is known as unlevered beta. 'Unlevering' the beta removes any beneficial or detrimental effects gained by adding debt to the firm's capital structure. Un-Levered Beta = Levered Beta / (1 + ((1 - Tax Rate) x (Total Debt/Equity))) Levered Beta = Un-Levered Beta x (1 + ((1 - Tax Rate) x (Total Debt/Equity)))

How many valuation methods can you give me?

Liquidation Valuation: Valuing a company's assets, assuming they are sold off and then subtracting liabilities to determine how much capital, if any, equity investors receive Replacement Value: Valuing a company based on the cost of replacing its assets LBO Analysis: Determining how much a PE firm could pay for a company to hit a "target" IRR, usually in the 20-25% range Sum of the Parts: Valuing each division of a company separately and adding them together at the end M&A Premiums Analysis: Analyzing M&A deals and figuring out the premium that each buyer paid, and using this to establish what your company is worth Future Share Price Analysis: Projecting a company's share price based on the P / E multiples of the public company comparables, then discounting it back to its present value.

LIBOR

London Interbank Offered Rate LIBOR is the benchmark interest rate at which major global banks lend to one another. LIBOR is administered by the Intercontinental Exchange, which asks major global banks how much they would charge other banks for short-term loans.

What does 'time value of money' mean?

Money in hand is better than money earned in the future.The time value of money refers to the idea that a sum of money today is worth more than the same sum of money in the future. This is because money can be invested and earn a return over time, meaning that it has the potential to grow in value.

Who are some of your favorite investors?

My favorite investors are Peter Lynch and my grandfather. I learn a lot from my grandfather, and don't always retain the information, however, he always says "invest in what you know," which is Peter Lynch's philosophy. Additionally, from my grandfather I have learned to do your research and homework on the markets. And of course, I watch and listen to what Warren Buffet recommends as well.

What's your five year plan?

My five-year plan is constantly changing, as do my career ambitions and interests. However, as of right now, I hope to have an internship in New York City next summer as an investment banking analyst. Following my internship, I hope to accept an offer from a firm that encompasses all my important values. Additionally, through acquiring more knowledge on the markets, I hope to have a very diversified portfolio that will serve as passive income.

Who would speak the worst about you in a professional setting and why?

Myself, I am my biggest critic and I am always wanting to improve my professionalism and communication skills. I always aim higher and want to better myself to be the best that I can be.

How do you select the appropriate exit multiple when calculating Terminal Value?

Normally you look at the Comparable Companies and pick the median of the set, or something close to it. As with almost anything else in finance, you always show a range of exit multiples and what the Terminal Value looks like over that range rather than picking one specific number. So if the median EBITDA multiple of the set were 8x, you might show a range of values using multiples from 6x to 10x.

If I could only have one financial statement what would I choose?/ What about 2?

One Financial Statement: You would use the Cash Flow Statement because it gives a true picture of how much cash the company is actually generating, independent of all the non-cash expenses you might have.And that's the #1 thing you care about when analyzing the overall financial health of any business - its cash flow. Two Financial Statements: You would pick the Income Statement and Balance Sheet, because you can create the Cash Flow Statement from both of those (assuming, of course that you have "before" and "after" versions of the Balance Sheet that correspond to the same period the Income Statement is tracking).

What do you like to do outside of investing?

Outside of investing, I really love graphic design and am obsessed with Harry Potter. When I was in high school, I started my own business and created designs for clothing on my iPad and sold them. I am thinking about getting a certificate in New Media because it is fun and easy for me. As for Harry Potter, I grew up loving the books and my freshman roommate and I always just binge the series about once every month. We even went to Harry Potter world together.

Is P/EBITDA a good ratio?

P/EBITDA is often used to value companies in industries that have high levels of capital expenditures and depreciation, such as manufacturing or =

What does a SMIF day in the life look like?

Pitch Day: Healthcare Bull Pitch - Healthcare pitches LabCorp buy and TMT pitches LabCorp sell - Healthcare presents LabCorp overview, investment thesis, risks, and valuation - TMT presents LabCorp investment antithesis in a similar format - Open Floor Q&A- Class/Vote (60% buy/sell threshold) Non-Pitch Day: Portfolio Discussion - Class discussion about what we like/dislike in portfolio - General market discussion (recent news, market outlook) newsGuest Speaker Presents - Q&A meet-and-greet

What is a P/E ratio?

Price per share over earnings per share determine a stock's relative valuation. The P/E ratio helps one determine whether a stock is overvalued or undervalued. We should shoot for a P/E ratio that is less than 20

Tell me why Price / EBIT is an inappropriate metric but Price / Earnings is appropriate?

Price/Earnings (P/E) is a commonly used valuation metric that compares a company's stock price to its earnings per share (EPS). It is a widely accepted way to evaluate a company's stock and determine if it is overvalued or undervalued relative to its earnings. This is because earnings are a fundamental driver of a company's stock price and are a good indicator of its profitability. On the other hand, Price/EBITDA (P/EBITDA) is a valuation metric that compares a company's stock price to its earnings before interest, taxes, depreciation, and amortization (EBITDA). While EBITDA is a useful metric for evaluating a company's profitability, it is not as widely accepted or commonly used as earnings. Additionally, EBITDA does not take into account interest payments, taxes, depreciation, or amortization, which can have a significant impact on a company's earnings. P/E is also more understood and more commonly used than P/EBITDA, as P/EBITDA is less useful for comparing companies across different industries, as interest and tax rates can vary widely.

News in Ukraine

Rampant inflation, damaged crops and the war in Ukraine have sent food prices soaring during the Muslim holy month of daytime fasting and nighttime feasting.

How do you calculate CAPM?

Re = Rf + B(Rm-Rf) Re = Rf + B(MRP) Risk free rate (yield on a 10-year US government bond) plus the company's beta times the market risk premium Market risk premium = Average return on the market - the risk free rate The risk-free rate represents how much a 10-year or 20-year US Treasury should yield Beta is calculated based on the "riskiness" of Comparable Companies and the Equity Risk Premium is the % by which stocks are expected to out-perform "risk-less" assets.

What does SMIF benchmark against

S&P 500

What is SMIF?

SMIF is a premier opportunity that allows students to actively learn and manage an equity portfolio of over $2.6M (as of the info session I attended) in a hands-on environment. SMIF's mission is to spread the alpha and provide students with a unique learning experience through portfolio management, security evaluation, and a support network.

Why do you want to be in SMIF?

SMIF will not only provide value to my future career, but it will also provide me with the opportunity to make connections with professionals and gain invaluable resources. I would benefit from every aspect of this class through the development of my confidence, presentation skills, and financial knowledge. I know that SMIF is a very competitive program and that I am not in Apollo or Atlas, which is why I will put in the effort and grit to perform alongside some of the most intelligent and driven individuals at UGA. In addition, this environment will allow me to grow both professionally and personally, while also enabling me to establish relationships with students who want to be there just as much as me. From attending the information session, it was encouraging to learn that everyone at SMIF is so welcoming and happy to help. After hearing all the other great things that Catherine and Madi had to say, I am confident that I want to be a part of SMIF and would take full advantage of everything it has to offer. SMIF is really good in the sense that I get to practice all the topics and things that I have learned in class and put together all the skills that I have acquired through my position on PSE exec to take responsibility and create great pitches and reports.

What is equity?

STOCKS refers to the ownership interest in a company or asset after all debts and other obligations have been paid. It represents the residual value that remains after all liabilities have been satisfied.

Talk to us about a market event you've been following

SVB Merck acquiring Prometheus for $10.8 billion - The latest charge is being led by Merck & Co., which agreed Sunday to buy Prometheus Biosciences Inc. for about $10.8 billion — continuing a theme of large biotechs looking for ways to boost pipelines and portfolios of new drugs. It's the latest boost for dealmakers in health care, which is one of the few sectors that's defied the global slump in M&A. - Shares of Prometheus Biosciences soared 70% in premarket trading on Monday after Merck & Co. announced that it would acquire the company in a $10.8 billion deal. - This deal gives Merck promising immune disease treatments.

A company has had positive EBITDA for 10 years but it recently went bankrupt. How could this have happened?

Several possibilities: 1. The company is spending too much on Capital Expenditures - these are not reflected at all in EBITDA, but it could still be cash-flow negative. 2. The company has high interest expense and is no longer able to afford its debt. 3. The company's debt all matures on one date and it is unable to refinance it due to a "credit crunch" - and it runs out of cash completely when paying back the debt. 4. It has significant one-time charges (from litigation, for example) and those are high enough to bankrupt the company.Remember, EBITDA excludes investment in (and depreciation of) long-term assets, interest and one-time charges - and all of these could end up bankrupting the company.

What is stock based compensation?

Stock-based compensation is a form of employee compensation that is commonly used by companies, particularly those in the tech industry. It involves giving employees stock options or equity awards, which allow them to purchase company stock at a future date, usually at a predetermined price. The goal of stock-based compensation is to incentivize employees to work hard and to align their interests with those of the company's shareholders.

Difference between a stock and a bond?

Stocks are equity Bonds are debt and bonds are tax deductible Stocks are shares in the ownership of a business, while bonds are a form of debt that the issuing entity promises to repay at some point in the future We use the after tax cost of debt to capture the tax savings through the interest. Debt interest is tax deductible and therefore to get the net cost of debt we must use the after tax cost of debt.

What's your biggest weaknesses and strengths?

Strengths: - Hyperfocus: I am able to focus on something for an extended period of time without being distracted. This has helped me stay in line with my classes and commitments in a timely manner. - Organized: I am extremely organized and hate messes. I love organizing my day and everything in my possession because it makes everything easier and gives me a sense of satisfaction. - Analytical: I am very analytical because I look at every little detail of something and tend to focus in on things more than I need to, but I would rather be more prepared or more detailed than not. Weaknesses: - Taking on too much at once: A lot of times, I overwhelm myself with too much on my schedule because I am ambitious and I like to challenge myself. But while I complete everything I need to, I need to learn to relax. - Being a perfectionist: I am my biggest critic and I sometimes try to correct other people, but I have learned to be easier on myself and take a step back sometimes. - I have a hard time with public speaking in front of small group settings: While I have gotten acquainted with speaking in front of a large audience through being on the executive council I sometimes struggle when it comes to smaller, more intimate groups because I feel more pressure to connect with the people in front of me and I have a fear of being judged sometimes.

How do you get to Equity Value from Enterprise Value

Subtract Net Debt from enterprise value Or multiply the current share price by the total number of shares

How do you select Comparable Companies / Precedent Transactions?

The 3 main ways to select companies and transactions: 1. Industry classification 2. Financial criteria (Revenue, EBITDA, etc.) 3. Geography For Precedent Transactions, you often limit the set based on date and only look at transactions within the past 1-2 years. The most important factor is industry - that is always used to screen for companies/transactions, and the rest may or may not be used depending on how specific you want to be.

Walk me through the three financial statements. How are they linked?

The 3 major financial statements are the Income Statement, Balance Sheet and Cash Flow Statement. The Income Statement gives the company's revenue and expenses, and goes down to Net Income, the final line on the statement. The Balance Sheet shows the company's Assets - its resources - such as Cash, Inventory and PP&E, as well as its Liabilities - such as Debt and Accounts Payable - and Shareholders' Equity. Assets must equal Liabilities plus Shareholders' Equity. The Cash Flow Statement begins with Net Income, adjusts for non-cash expenses and working capital changes, and then lists cash flow from investing and financing activities; at the end, you see the company's net change in cash. LINK: To tie the statements together, Net Income from the Income Statement flows into Shareholders' Equity on the Balance Sheet, and into the top line of the Cash Flow Statement. Changes to Balance Sheet items appear as working capital changes on the Cash Flow Statement, and investing and financing activities affect Balance Sheet items such as PP&E, Debt and Shareholders' Equity. The Cash and Shareholders' Equity items on the Balance Sheet act as "plugs," with Cash flowing in from the final line on the Cash Flow Statement.

How did COVID-19 affect the stock market?

The COVID-19 pandemic had a significant impact on global financial markets. In the early stages of the pandemic, markets experienced extreme volatility as investors reacted to the uncertainty and rapidly changing situation. The severity of the pandemic and its potential impact on the global economy led to a sharp sell-off in stocks and other risk assets.The pandemic affected different sectors of the market in different ways. For example, travel and hospitality companies were hit hard as lockdowns and travel restrictions severely impacted their business operations. On the other hand, some technology companies and e-commerce platforms benefited from the shift to remote work and online shopping.Central banks around the world took swift action to support the economy by implementing monetary policies such as lowering interest rates and providing liquidity to financial markets. Governments also launched massive stimulus packages to support businesses and individuals impacted by the pandemic.Overall, the pandemic caused significant disruption to global markets and the economy, but the implementation of various policies and interventions helped to mitigate some of the impact. The long-term effects of the pandemic on the market and the economy are still unfolding and remain uncertain.

What is happening in the Fed?

The Fed raises interest rates again despite the stress in banking The Federal Reserve raised its benchmark interest rate by a quarter percentage-point in an effort to curb high inflation. The has led to the bear market that we are primarily in as stock prices were decreasing but now they seem to be rising back up.

Explain the 2008 financial crisis

The financial crisis of 2008, also known as the global financial crisis or the 2008 economic recession, was a major economic downturn that began in 2008 and lasted for several years. It was triggered by a housing market collapse in the United States that led to widespread losses in the banking and financial sectors, which ultimately had global implications.In the years leading up to the crisis, banks and financial institutions were lending large amounts of money to homebuyers who could not afford to repay their loans. These loans were bundled together and sold to investors as mortgage-backed securities. However, when the housing market collapsed, many homeowners defaulted on their loans, causing these securities to lose value rapidly. This led to major losses for banks and other financial institutions, which in turn caused a credit crunch and a global recession.The crisis had far-reaching consequences, including widespread job losses, foreclosures, and a significant decline in consumer and business confidence. It also resulted in major regulatory reforms in the financial sector, including the passage of the Dodd-Frank Act in the United States.

How do you calculate WACC?

The formula is: Cost of Equity (% Equity) + Cost of Debt (% Debt) (1 - Tax Rate) + Cost of Preferred (% Preferred). In all cases, the percentages refer to how much of the company's capital structure is taken up by each component. For Cost of Equity, you can use the Capital Asset Pricing Model (CAPM - see the next question) and for the others you usually look at comparable companies/debt issuances and the interest rates and yields issued by similar companies to get estimates.

What multiples are most commonly used in valuation?

The most common multiples are EV/Revenue, EV/EBITDA, EV/EBIT, P/E (Share Price / Earnings per Share), and P/BV (Share Price / Book Value per Share).

What are some issues in using the multiples method for terminal value?

The multiples method is a commonly used approach to estimating the terminal value of a company in a Discounted Cash Flow (DCF) analysis. While the multiples method can be useful, there are several potential issues to be aware of when using this approach to estimate terminal value: Industry-specific multiples: The multiples used to estimate the terminal value should be appropriate for the industry in which the company operates. Using multiples that are not specific to the industry could result in an overestimation or underestimation of the terminal value. Uncertainty in future multiples: The multiples used to estimate the terminal value are based on future projections, which are inherently uncertain. Changes in market conditions, industry trends, and other factors could result in a significant deviation from the projected multiples. Lack of transparency: Multiples are often based on market data and may not be transparent or easily explainable. This can make it difficult to justify the multiples used in the analysis, especially if they are significantly different from those of comparable companies. Overreliance on multiples: Multiples are just one method of estimating terminal value, and should not be relied upon exclusively. Other methods, such as a perpetuity growth rate, should be considered in addition to multiples. Lack of consideration for business-specific factors: Multiples do not take into account the unique characteristics of a company, such as its growth prospects, competitive position, and management team. This can result in an inaccurate estimate of the company's terminal value. Overall, while the multiples method can be useful in estimating the terminal value of a company, it is important to be aware of the potential issues and limitations associated with this approach. Careful consideration of the appropriate multiples and a thorough analysis of the company's specific characteristics are necessary to ensure an accurate estimate of terminal value.

How would you value an apple tree?

The same way you would value a company: by looking at what comparable apple trees are worth (relative valuation) and the value of the apple tree's cash flows (intrinsic valuation). Yes, you could do a DCF for anything - even an apple tree.

What are the different sectors/industries in the stock market?

There are 10 sectors within SMIF: (however 11 total in the stock market) Technology, Media & Telecommuncations (TMT) Software as a Service (SaaS) Financial Institutions Groups (FIG) Healthcare Consumer Products & Retail Financial Restructuring Real Estate (REIT) Real Estate Private Equity (REPE) Industrials Oil & Gas (O&G)

Can you tell us about a time where you had to step up and be a leader?

This past semester, I took on the VP of Professional Development role for PSE. Through our executive council discussion, I expressed how I thought the structure of my role should change or in better words improve. From attending round tables, meetings, and workshops as a member previously, I put together different topics that I wish I had learned and more.

Is it better to be a leader or a follower?

Through my past experience, I have mostly fallen into the follower category. However, I have learned that being a follower can be better, as it trains and prepares you for being a leader. Followers do most of the heavy lifting and work, but through this you learn how to be a better leader for others.

What valuation method usually gives the highest valuation and why?

Trick question - there is no ranking that always holds.I n general, Precedent Transactions will be higher than Comparable Companies due to the Control Premium built into acquisitions. Beyond that, a DCF could go either way and it's best to say that it's more variable than other methodologies. Often it produces the highest value, but it can produce the lowest value as well depending on your assumptions.

Who is ___? ○ Warren Buffett ○ Carl Icahn ○ Benjamin Graham ○ Janet Yellen ○ Ben Bernanke ○ Allen Greenspan ○ Jamie Dimon

Warren Buffet is the chairman and CEO of Berkshire Hathaway and one of world's most loved investors; known for his value investing approach and his long-term perspective on investments. Carl Icahn is known for his activist investing, where he takes large stakes in companies and then uses his influence to push for changes in their management, operations, or corporate strategy to increase shareholder value. Benjamin Graham is the founder of value investing; wrote the classic book "The Intelligent Investor" and was also a mentor to Warren Buffett. Janet Yellen is the previous Fed Chair (2014-2018) Ben Bernanke is the 2nd previous Fed Chair (2006-2014) who did research on the great depression, which has been helpful in regulating financial markets and dealing with financial crises Allen Greenspan is the 3rd previous Fed Chair (1987-2006) 0 served five terms and under 4 presidents - So when he doubts the Fed's recent rate hikes, plenty of people listen Jamie Dimon is an American billionaire businessman and banker, who has been the chairman and chief executive officer of JPMorgan Chase since 2005. - JPMorgan Chase is the biggest bank in America

Walk us through your resume/tell us about yourself.

Well, I grew up and live in Virginia Beach, Virginia. When it came time for applying to colleges, I had no idea that I would end up attending an out-of-state school. After visiting Georgia and weighing the pros and cons of both Georgia and Virginia, I landed on UGA after discovering how great the business school is and how well rounded the school is overall. This gave me the opportunity to try new things and get out of my comfort zone. I landed on finance because my mom has been working at Truist for 25 years and my grandfather has always talked about the stock market and finances. I would be the only one who would be interested enough to listen to him. During my freshman year, I decided to join a few nonprofit clubs and then I joined PSE. From attending all the meetings, roundtables, and workshops, I furthered my interest in having a role on the executive board. This year, I have worked hard to earn a position on the executive board of PSE as VP of PD where I have restructured the position by adding more workshops and roundtables to expand learning. Additionally, Operation Smile has always been a crucial part of my life ever since I could remember. I volunteered when I was young, was co-president on my high school club, on regional leadership council, was selected to go on a medical mission in Bolivia (but it was canceled due to COVID), and am now the director of marketing for Operation Smile at UGA. This upcoming summer, I have lined up job shadowing at Truist for the summer where I will be shadowing various professionals, as we I hope to gain more insight into what profession I want to go into and gain more knowledge and experience. It will also be my 4th year working at Tupelo Honey Cafe and I will be going to the beach and surfing in my free time. Lastly, I will be studying abroad at the University of Oxford where I will be learning topics in economics and international business. And hopefully have enough time to explore and travel, as it will be my first time in Europe.

Interviewer Questions

What is your favorite stock that you have pitched to SMIF and why? What has been the most fun part of SMIF? Based on your experiences at SMIF, what has been the most rewarding? Do u have an internship/have you had an internship and how does it compare to what u have learned with SMIF/what has SMIF taught you that has been applicable to the workforce? How do y'all measure a students success in the class and what is the grading system consist of, as this is a basically a hybrid class/club?What is your future career? What has SMIF provided you with that is relevant to your future role? What is the biggest challenge you have come across while in SMIF? Can you expand on the structure of the sector teams and what the sector leaders do? What is something that you have learned from a guest speaker and who was it? Besides dealing with real investments, what is the difference between taking this class and the other Terry course?

If we were to call your previous bosses, teachers, mentors, etc. what positive things would they say about you?

When I was 16, I had my first interview ever to be a hostess at Tupelo Honey. My old boss, Ryan, is the one who hired me and led me through the first couple of months of the position, as I was the youngest employee and it was my first ever job. Through working at Tupelo for so long, I got really close with him and still update him through college, which shows loyalty. Every time I would walk into work, he would always ask why I am so happy and smiley, which leads me to believe that he would say that I am positive. Lastly, I would always walk around the restaurant as fast as I could because I wanted to be efficient and timely, and everyone would always comment on that, which represents how I am hardworking.

How do you deal with having a differing opinion from those around you?

When committing to a college, my family had a very different idea of what they wanted for me. I was just accepted into UGA and UVA, the in state school that I had always dreamed of going to. Many of my family members wanted me to stay in state, while I was in love with UGA. Through respecting their opinion, listening actively, explaining my opinion rationally, and looking for common ground, they came to the agreement that the choice was up to me to choose what college to attend. In the end, they were supportive and couldn't be happier when they visit Athens.

How do you calculate Terminal Value?

You can either apply an exit multiple to the company's Year 5 EBITDA, EBIT or Free Cash Flow (Multiples Method) or you can use the Gordon Growth method to estimate its value based on its growth rate into perpetuity. The formula for Terminal Value using Gordon Growth is: Terminal Value = Year 5 Free Cash Flow * (1 + Growth Rate) / (Discount Rate - Growth Rate).

If you use Levered Free Cash Flow, what should you use as the Discount Rate?

You would use the Cost of Equity rather than WACC since we're not concerned with Debt or Preferred Stock in this case - we're calculating Equity Value, not Enterprise Value.

NASDAQ?

around $13,100 indicate trend

Gold?

around $2,006 indicate trend

What is the DOW at?

around $34,000 indicate trend

S&P 500?

around $4,156 indicate trend

US 10 YR yield?

around 3.6 indicate trend 5 year and 30 year are around the same: 3.7-3.8

What is accounts receivable?

asset, money owed to a company by its debtors

Intrisnic Valuation

estimating the net present value of its future cash flows (DCF)

Silicon Valley Bank Crisis

https://www.wsj.com/articles/bank-collapse-crisis-timeline-724f6458

What is private equity?

investments in companies that are not traded on a stock exchange

Where is EBITDA on the income statement?

this question is tricky.... EBITDA is not formally on the income statement and is located at the bottom of the cash flow statement. However, through the classes I have taken, when calculating EBITDA on the income statement, it is usually under SG&A expenses. Therefore it is similar Operating Income, unless Depreciation and Amortization are embedded in COGS or operating expenses.

Value vs growth stock

value stocks are considered riskier than growth stocks value stocks are companies investors think are undervalued by the market, and growth stocks are companies that investors think will deliver better-than-average returns

Relative Valuation

valuing a firm relative to other comparable firms (comparable company vs precedent transactions)