IHC Int

Fisher Equation

(1 + nominal interest rate) = (1 + real interest rate) * (1 + inflation rate)

Why do people focus so heavily on EPS when evaluating a potential merger?

It is the only easy-to-calculate metric that also captures the FULL impact of the deal Forgone interest on cash, new interest on debt, increased share count Metrics such as unlevered FCF & EBITDA don't reflect the deals full impact because they exclude interest & effects of new shares

If one company purchases another what will the combined BS look like?

It'll be the sum of the BSs plus any goodwill due to control premium & intangible value

WHAT IS NET WORKING CAPITAL?

Net Working Capital is current assets minus current liabilities. It is a measure of a company's ability to pay off its short-term liabilities with its short-term assets. A positive number means they can cover their short-term liabilities with their short-term assets. A negative number indicates that the company may have trouble paying off its creditors, which could result in bankruptcy if cash reserves are insufficient.

What is the mid-year convention in a DCF?

Since cash is not all collected once at the end of the year, one can account for this by discounting at a lower rate over half-years Discounting will occur annually starting at a half-year mark (.5, 1.5, 2.5, etc.) which is more reasonable than receiving all collections on December 31st A 3rd year CF will be discounted for a 2.5 year

What does the terminal value represent/why is it significant?

Since it is infeasible to project a company's FCF indefinitely, we use a terminal value to capture the value of the company beyond the projection period. The terminal value typically accounts for a substantial portion of a company's value in a DCF, sometimes three quarters or more.

WHAT DOES SPREADING COMPS MEAN?

Spreading comps means calculating relevant multiples from comparable companies and summarizing them for easy analysis and comparison. It can be challenging when a company's data and financial information must be scoured to conduct necessary research.

WHAT IS DEFERRED REVENUE AND WHY IS IT A LIABILITY?

Unearned revenue represents a future cash outflow Adjusts in the SCF, as revenue is recognized it is offset by the decrease in the liability therefore cash will be unchanged from the future revenue

Unlever Beta

(levered beta)/(1 + (1-taxrate)*(debt/equity))

What is the difference between shares outstanding and fully diluted shares outstanding?

Most common way of calculating fully diluted shares is the treasury stock method Involves finding number of current shares outstanding, adding number of options & warrants "in-the-money" and subtracting shares that could be repurchased using proceeds from exercising the options & warrants

Adjusted Present Value

NPV of unlevered firm + Net effect of debt Unlike WACC used in discounted cash flow, the adjusted present value seeks to value the effects of the cost of equity and cost of debt separately.

KEY SIMILARITIES BETWEEN COMPARABLE COMPANIES?

Business Profile - sector, product and service offering, customers and end markets, distribution channels, geography Financial Profile - size, profitability, growth profile, return on investment, credit profile

When projecting out depreciation and amortization, what balance sheet line items are impacted by these annual non-cash expenses?

Depreciation expense from the Income Statement (or Notes) reduces the Balance Sheet Account for Plant Property & Equipment, a non-current asset. Amortization expense, also from the Income Statement (or Notes) reduces the Balance Sheet Account for Intangible Assets. Only certain identifiable intangible assets are currently amortizable under U.S. GAAP.

WHY DO YOU SUBTRACT CASH FROM ENTERPRISE VALUE?

One good reason is that cash has already been accounted for within the market value of equity. You also subtract cash because it can be used either to pay a dividend or to reduce debt, effectively reducing the purchase price of the company.

If a company has 1,000 shares outstanding at $5 per share and has 100 options outstanding at $2 per share, what is the company's fully diluted equity value?

$5,000 market cap; 100 options exercise for profit of $200; 40 shares bought back for $200; new share count = 1060; new equity value = $5,300 diluted market cap

Implied Perpetuity Growth Rate

((Terminal Value Calculated from Perpetuity Growth Method x WACC) - FCF from Terminal Year) / (Terminal Value Calculated from Perpetuity Growth Method + FCF from Terminal Year)

lever beta

(unlevered beta) * (1 + (1-taxrate)*(debt/equity))

Walk me through a DCF

DCF is worth the discounted value of its future cash flows start s with EBIT * (1-tax) +Depreciation + Amortization - Capex +/- change in NWC Project CF out 5-10 years (possibly through in optimistic/pessimistic CF) TV is typically some perpetuity growth or exit multiple etc Discount factor will be the WACC Cost of debt is interest of debt Cost of equity is CAPM

3 main valuation methods

DCF, Trading multiples, transaction Multiples DCF is very subjective so bullish & bearish investors can make 2 different value targets Can be the Highest Transaction multiples provide real time snapshots However can be the highest because of control premium Typically M&A multiples Trading multiples provide current snapshot of the trading of the company i.e. realtime worth Look at them over the year Possibly average them out over the year or 5-10 years in the sectorDCF, Trading multiples, transaction Multiples

Walk me through the basics of a merger model (accretion/dilution model)

Determine the likely purchase price of the company & how the deal will be financed Project income statements for both companies Combined projected IS' by adding together each line item Make necessary adjustments for capital structure change: If financed w/cash decrease interest earned If financed w/debt increase interest expense If financed w/stock increase share count Apply buyers income tax to both companies and divide the after tax income by new share count Compare new EPS & buyers old EPS

How do you incorporate an accurate WACC for a diverse company with several business segments/reporting lines with materially different risk profiles?

In this case, it may be worth approaching the valuation using a "sum of the parts" analysis in which a separate DCF is performed for each business segment. Each business segment would have its own WACC to most accurately reflect the risk profile of each subsidiary business individually.

What happens to Earnings Per Share (EPS) if a company decides to issue debt to buy back shares?

Issuance of debt increases after-tax interest expense which lowers EPS. Repurchase of shares reduces the number of shares outstanding which increases EPS. Whether it increases or decreases EPS depends on the net impact of the above two points.

WHAT IS MEANT BY NEGATIVE CHANGE IN NWC? IS NEGATIVE WC BAD?

Negative NWC mean the company is paying its ST dues quicker than it is getting paid for ST dues owed to it Negative WC indicates a solvency issue as it means current assets < current liabilities

WHICH OF THE VALUATION METHODS WILL RESULT IN THE HIGHEST VALUATION?

Of the four main valuation techniques highest valuation will normally come from the Precedent Transactions technique, because a company will pay a premium for the projected synergies coming from the merger DCF would be next because there tends to be an optimistic bias Market Comps and Market Value will usually produce the lowest valuations.

How does an inventory write-down affect the three statements?

On the BS, an inventory write-down will result in a reduced Inventory on the assets and the SE will be reduced by the inventory reduction amount. The reduction will either show up as its own line item or as part of the COGS on the IS thus reducing net income On the SCF, the NI will be lower on the Operating activities, however the reduction will be added back since it is a non-cash expense

How do you go from the enterprise value you calculate using a DCF to a per share price for a public company?

Once you get enterprise value, you subtract the net debt (Debt-Cash), preferred stock, and minority interests. Once you have the equity value, you must divide by the number of fully diluted shares outstanding However, diluted shares are based on share price due to options so you will need to build a function in excel to calculate this A quick & dirty alternative however would just be to divide by shares outstanding

What is operating leverage?

Operating leverage is the relationship between a company's fixed and variable costs. company with more fixed costs has a higher level of operating leverage. While a company with a high degree of operating leverage will have a higher earnings growth potential than a company with a largely variable cost structure, certain financial institutions will prefer to lend to businesses with a variable cost structure to help mitigate their downside risk financial institution is comforted by the fact that the company they are lending to still has the ability to cut back on some of their expenses should they see an economic downturn approaching or other signs of a decrease in financial performance Equity investors are the investors that benefit the most from earnings growth potential, and as such will prefer to invest in companies with a higher degree of operating leverage

Walk me through a merger model

Start by projecting financial statements of a buyer & seller Estimate purchase price and use of cash, stock, and debt used to fund the deal Create a sources & uses schedule and purchase price allocation schedule to estimate the true cost of the acquisition and its effects Combine the BS of the buyer & seller reflecting cash, debt and stock used as well as goodwill created and any write-ups Combine IS reflecting forgone interest on cash, interest on debt, and synergies If debt or cash changes over time, your interest figures should also change Combined net income equals combined pre-tax income*(1-tax) Divide this by current shares outstanding and new shares issued to get combined EPS Calculate combined accretion/dilution by taking combined EPS divided by buyer EPS - 1

What are synergies?

Synergies are efficiencies that can exist through the combination of two company operations They create value so that through the combination of the two companies will be greater value than just adding the values of the two companies Cost synergies are typically the easiest to capture since they primarily result in a reduction of force or downsizing to one facility rather than two Revenue synergies will typically result from the reduced competition, liberty of raising of prices, economies of scale, cross-marketing, and other adjustments

What are some differences between tax-accounting & GAAP-accounting?

Tax-accounting focuses on what a company owes in income tax in that year & is cash-based and focused only on revenue & expenses that year GAAP is focused more on tracking the company long term and is accrual-based Depreciation schedules also differ in the sense that tax-accounting has accelerated depreciation schedules whereas the GAAP-accounting uses straight-line basis

HOW DO YOU CALCULATE A FIRM'S TERMINAL VALUE?

There are two ways to calculate terminal value first is the terminal multiple method choose an operation metric (most commonly EBITDA) and apply a comparable company's multiple to that number from the final year of projections second method is the perpetuity growth method choose a modest growth rate, usually just a bit higher than the inflation rate or GDP growth rate, and assume that the company can grow at this rate infinitely then multiply the FCF from the final year by 1 plus the growth rate, and divide that number by the discount rate (WACC) minus the assumed growth rate

What is a dividend recapitalization?

This will typically occur around the middle of a PE investment horizon. Investors sometimes demand an early interim payout so the PE investors may take out new & cheaper debt to pay off current debt outstanding and to pay a large dividend to the investors of the PE firm Say a company was bought for $100mn equity & $500mn debt with $100mn EBITDA After few years debt reduced to $300mn & equity to $300mn with $150mn EBITDA PE firm may choose to recap to $750mn debt to repay the $300mn of debt & $450mn is used as dividend to shareholders

ALL ELSE EQUAL, SHOULD THE COST OF EQUITY BE HIGHER FOR A COMPANY WITH $100 MILLION OF MARKET CAP OR A COMPANY WITH $100 BILLION OF MARKET CAP?

Typically, a smaller company is expected to produce greater returns than a large company, meaning the smaller company is more risky and therefore would have a higher cost of equity.

WHAT IS WACC AND HOW DO YOU CALCULATE IT?

WACC is the weighted average cost of capital which is the minimal expected rate of return to discount investments by. You divide the cost of debt * (1-tax rate) by the weight of debt add the cost of equity divided (CAPM) by the weight of equity and proceed to do this with other stakeholders such as preferred equity

What is the difference between Adjusted Present Value & WACC?

WACC typically used for company using constant capital structure over the course of the valuation & it takes into account the interest tax shield WACC is a type of discount rate APV used when the capital structure is expected to change materially APV is a type of DCF Adjusted Present Value = Unlevered Firm Value + Net effect of debt

WHEN CALCULATING ENTERPRISE VALUE, DO YOU USE THE BOOK VALUE OR THE MARKET VALUE OF EQUITY?

When calculating a company's EV, you use the market value of the equity because that represents the true supply-demand value of the company's equity in the open market.

ALL ELSE EQUAL, SHOULD THE WACC BE HIGHER FOR A COMPANY WITH $100 MILLION OF MARKET CAP OR A COMPANY WITH $100 BILLION OF MARKET CAP?

Without knowing more information about the companies, it is impossible to say. If the capital structures are the same, then the larger company should be less risky and therefore have a lower WACC. However, if the larger company has a lot of high-interest debt, it could have a higher WACC.

HOW DO YOU VALUE A PRIVATE COMPANY?

You can value a private company with the same techniques you would use for a public company but with a few differences that make it more difficult Financial information will likely be harder to find and potentially less complete and less reliable you can't use a straight market valuation for a company that isn't publicly traded a DCF can be problematic because a private company won't have an equity beta to use in the WACC calculation if you're doing a comps analysis using publicly traded companies, a 10-15% discount may be required as a 10-15% premium is paid for the public company's relative liquidity

How can you perform a sanity check on an assumed terminal value?

You could compare the two terminal values implied by the Exit Multiple Method and the Perpetuity Growth Method. If they are materially different, review the implied perpetuity growth rate and implied exit multiples. If the implied perpetuity growth rate, as derived from the Exit Multiple Method is too high or too low, it could be an indicator that the exit multiple assumptions are unrealistic. Similarly, if the implied exit multiple from the Perpetuity Growth Method is not in line with normalized trading multiples for the target and its comp set, the perpetuity growth rate should be revised.

How do you model working capital for a company?

DSO DPO DIO

Implied Exit Multiple

Terminal Value Calculated from Perpetuity Growth Method / EBITDA in Final Year

Perpetual Growth (TV)

final year free cash flow * (1 + growth rate) / (WACC - Growth Rate)

Calculate a perpetuity

Cash flows / cost of capital $200 CF in perpetuity w/10% discount rate = $2,000

WHAT IS THE DIFFERENCE BETWEEN ENTERPRISE VALUE AND EQUITY VALUE?

Equity Value represents residual value for common shareholders after the company satisfies its outstanding obligations (net debt, preferred stock [senior to common equity]).

How do you model revenues for a company?

A bottom-up approach to financial modeling involves starting with individual products/services, estimating average prices/fees per product or service and then growth rates. A top-down approach involves starting with the overall market size, estimating a company's market share, and then translating that into revenue. A year-over-year approach involves taking last year's revenue and increasing it or decreasing it by a certain percentage.

What is the average Price/Earnings PE ratio for the S&P 500 Index?

About 15-20 times, the PE ratio varies by industry and period in the cycle.

What is the difference between an accretive merger & a dilutive merger and how would you go about figuring out which is which?

Accretive deals are where extra Pre-tax Income of the seller exceeds the cost of the acquisition in the form of forgone interest on cash, interest paid on new debt, and new shares issued If acquirer EPS increases vs pre-merger acquirer EPS the deal is accretive EPS will increase if net income of target > interest forgone EPS will decrease if interest forgone > net income EPS may decrease if share count increases Accretive deals are where acquirer EPS will increase post-merger while a dilutive is the opposite The quickest way of identifying whether or not the deal will be accretive is looking at PE ratios If acquirer price to earning is greater than target price to earning, deal is likely accretive Especially true if the deal is all stock

WHAT IS DIFFERENCE BETWEEN ACCOUNTS PAYABLE & ACCRUED EXPENSES?

Basically the same thing but AP is typically 1-time thing while accrued expense is likely reoccurring such as with paying employees

HOW DO YOU DETERMINE WHICH VALUATION METHODOLOGY TO USE?

Because each method has unique ability to provide useful information, you don't choose just one. The best way to determine the value of a company is to use a combination of valuation techniques

why do you unlever beta?

By unlevering beta you remove the financial effects of debt in the capital structure It shows you the risk of a firm's equity compared to the market & allows you to compare risks solely on the company's equity If a company is private and no beta exists, you can find their beta by unlevering a comparable beta and relevering it using the private companies capital structure

WHAT BASIC TOOLS AND METRICS DOES A FINANCIAL PROFESSIONAL USE TO EVALUATE POTENTIAL PROJECTS OR INVESTMENTS?

Cost of Capital: An individual's cost of capital, or "discount rate" represents what he or she could earn by investing in another asset (the opportunity cost) if an investment is expected to generate a return in excess of an investor's CoC, that investor should pursue the project. In general, equities tend to have a higher discount rate because the expected potential returns are higher, and carry more risk than fixed income

Which type of synergies are most important?

Cost-saving & reduction in headcount are most quantitative and tangible as compared to economic effects factoring into revenue synergies Cost-saving synergies are typically taken more seriously

What is a dividend discount model?

Dividend discount is like a DCF but rather than using FCF you use dividends Rather than projecting our FCF, you project out Earnings Per Share for the business Assume that a certain percentage of EPS is being paid out as a dividend based on historical dividend policy and how much cash the company wants to retain on their balance sheet Steps Project out dividends based on EPS for the next 5-10 years (as opposed to FCF in a DCF) Discount the dividends using Cost of Equity rather than the WACC For the TV you will use an equity valuation multiple like P/E & discount back to year 0 Sum the discounted dividends to find the per share Value multiply this by current shares outstanding to find the Equity value, from there you add the book value of debt & any minority interests to find the enterprise value

WHAT IS THE PURPOSE OF THE CHANGES IN WORKING CAPITAL SECTION OF THE CASH FLOW STATEMENT?

Due to accrual accounting, changes in balance sheet items like accounts payable and accounts receivable are not reflected.

WOULD YOU BE CALCULATING ENTERPRISE VALUE OR EQUITY VALUE WHEN USING A MULTIPLE BASED ON FREE CASH FLOW OR EBITDA?

EBITDA and FCF represent CFs that are available to repay holders of a company's debt and equity, so a multiple based on one of those two metrics would describe the value of the firm to all investors A multiple such as P/E ratio, based on earnings alone, represents the amount available to common shareholders after all expenses are paid, so if you used this multiple, you would be calculating the value of the firm's equity.

How would you calculate an equity beta and why is it important?

Equity beta also known as levered beta offers a measure of volatility of the stock movement relative to the overall market Equity beta is levered up so it takes into account the capital structure of the company and the effects of debt on said capital structure More debt will increase the equity beta as debt increases effects of volatility Asset beta or unlevered beta is the measure of volatility of the underlying company By performing a regression between the market & the company you'll find the equity beta, or if you receive an asset beta and relever using the formula, or if you take the covariance between the market and the company and divide it by the market variance you will find beta

WALK ME THROUGH THE MAJOR LINE ITEMS OF AN INCOME STATEMENT

First you have Revenue/sales (positive); subtract COGS, Operating Expenses, Depreciation & Amortization, Net Interest Expense, Other Expenses (Income), Income Tax Provision; giving you the Net Income

WALK ME THROUGH A DISCOUNTED CASH FLOW MODEL

First, project the company's free cash flows for about 5 years using the standard formula. (Free cash flow is EBIT times 1 minus the tax rate, plus Depreciation and Amortization, minus Capital Expenditures, plus or minus the Change in Net Working Capital.) Next, predict free cash flows beyond 5 years using either a terminal value multiple or the perpetuity method. To calculate the perpetuity, establish a terminal growth rate, usually about the rate of inflation or GDP growth, a low single-digit percentage. Now multiply the Year 5 cash flow by 1 plus the growth rate and divide that by your discount rate minus the growth rate. Your discount rate is the Weighted Average Cost of Capital, or WACC. Use that rate to discount all your cash flows back to year zero. The sum of the present values of all those cash flows is the estimated present Enterprise Value of the firm according to a discounted cash flow model.

What metrics are commonly employed when projecting net working capital in a DCF valuation?

For a company with common working capital accounts, such as accounts receivable, inventories, prepaid assets, other current assets, accounts payable, accrued expenses, deferred revenue, other current liabilities, etc., common ratios include: Days Sales Outstanding (DSO): (Accounts Receivable/Sales) x 365 Days Inventory Held (DIH): (Inventory/Cost of Goods Sold) x 365 Inventory Turns: Cost of Goods Sold / Inventory Days Payable Outstanding (DPO): (Accounts Payable/Cost of Goods Sold) x 365

HOW DO YOU CALCULATE FREE CASH FLOW?

Free cash flow is EBIT times 1 minus the tax rate plus Depreciation and Amortization minus Capital Expenditures minus the Change in Net Working Capital

Your Story/Tell Me About Yourself

From South of Boston Attended UofU Studied CS & Finance 15-18 Credits/Semester while working FT as financial analyst & PT as Research assistant Prior to Finance Career, worked as Guest Ambassador @ 5-star hotel SLC (Verbal Communication Skills) - entertained HNW guests & ensured leaders of events hosted by our hotel enjoyed their stay to the extent they would return following years End of Sophomore year took first finance class which got me interested in finance I showed strong command of the material Professor (who previ ously formed a PE firm) saw potential in me and provided me with mentorship & he fostered my interest in financial strategy Seeking to enter the professional environment, obtained internship @ Arivo shortly after Starting as SQL reporting intern - no prior experience in SQL but quickly learned to an advanced level one month into the job within the next two months completely overhauled the reporting structure Although excelled @ SQL, sought position aligned w interests & degree moved to the Finance department with a full-time role Although primarily working in finance, gained exposure in DCM, risk, and strategy by working on outside projects Due to the fact Arivo small start-up & I was the only analyst shared by several departments While assisting an old friend with understanding the financials of a healthcare company he was consulting for, I became enthralled by the healthcare industry and the financial impacts of various strategies. So I'm here today because I want to apply my finance background to make a pivot into a role with greater responsibility and autonomy at a top company in my desired industry. I believe I would be an excellent fit because of my adaptability, alternative thinking, and pursuit of excellence. I strive to always improve as to ensure any team I am a part of will continually thrive.

If you couldn't use a DCF or Multiples, how would you value an asset?

Generally there are 3 ways to value: Market: comparable trading or comparable precedent transactions Income: some form of capitalization of income and discounting cash flows Asset: NAV; sum of parts - business is sum of its parts, based on theory of substitution. Investor will be unwilling to pay more for an asset than it would take to build the business on their own from buying parts Know adjusted net book value of asset (net of depreciation) - does not reflect market value of the asset What it would take to buy the parts in the market currently Main Shortcoming is you can't do this with intangibles (goodwill/brand name)

WHAT IS GOODWILL?

Goodwill is an asset that captures what is paid for an acquisition over fair market value (i.e. what the assets are worth)

What is the difference between goodwill & other intangible assets?

Goodwill is normally the markup of a company's value stemming from an M&A transaction Goodwill is not amortized and written down only when impaired or company acquired Other intangibles are not physical but amortized over a set period of time Will act as an amortization expense on income statement; reducing net income Will also reduce the book value on the balance sheet as it is amortized

WHAT IS THE DIFFERENCE BETWEEN THE INCOME STATEMENT AND STATEMENT OF CASH FLOWS?

IS describes expense allocation & revenue generation, also includes non-cash expenses SCF describes cash retention/distribution over 3 sections; financing/operating/investing

Are the cases where EPS accretion & dilution is not important?

If the buyer is private or if they have a negative EPS - they won't care if deal is accretive Will not make a difference if buyer is materially larger than the seller Other methods to use instead of this method: IRR to discount rate Value of the buyer before & after the deal

What would be effect of using leveraged free cash flow as compared to unleveraged free cash flow?

If you were to use the levered FCF in your DCF, you would end up with the equity value rather than the enterprise value since CFs you are finding are the PV after interest has been paid Therefore levered FCF represents how much cash is available for equity investors

WHAT ARE SOME WAYS YOU CAN VALUE A COMPANY?

There are a number of ways I can think of to value a company, and I'm sure you know even more. The simplest is probably market valuation, which is just the public Equity Value of a company based on the public markets. To get the Enterprise Value, you add the net debt on its books, preferred stock, and any minority interest. A few other ways to value a company include comparable company analysis, precedent transactions, discounted cash flow, leveraged buyout valuation, and liquidation valuation.

Describe a company's capital structure

There are multiple levels ranging from senior debt at the ceiling to equity at the floor There are multiple levels of both debts & equity However under the senior debt (bank loans), there is mezzanine & bonds followed by subordinated debt & HY bonds Under that you have preferred equity which is typically a mix between debt & equity followed by common stock In that you'll see securities which are most secured to least secured meaning that the more senior the security is, the greater claim they have on the assets in case of a bankruptcy Typically equity holders will receive nothing in the case of a bankruptcy

A company has learned that due to a new accounting rule, it can start capitalizing R&D costs instead of expensing them Part a) What is the impact on EBITDA? Part b) What is the impact on Net Income? Part c) What is the impact on cash flow? Part d) What is the impact on valuation?

a) EBITDA increases by amount capitalized; b) Net Income increases, the amount depends on depreciation and tax treatment; c) Cash flow is almost constant - however, cash taxes may be different due to depreciation rate d) Valuation is constant - except for cash taxes impact/timing on NPV

How do you record PP&E and why is this important?

four areas to consider when accounting for PP&E on the balance sheet: initial purchase, depreciation, additions (capital expenditures), dispositions (PP&E is usually the revenue generator for the business)

Revolver

line of credit, which is not fixed in size, but rather has a maximum. A company can borrow and then pay off the debt at any time. Think of it as a credit card for companies. (secured)

WHAT IS A DEFERRED TAX ASSET AND WHY MIGHT ONE BE CREATED?

occurs when a company pays more in taxes to the government than they show as an expense on their income statement in a reporting period Another reason a company may generate a deferred tax asset is through a Net Operating Loss (NOL) - used to reduce tax expense when there is positive income

WHAT IS EBITDA?

one of the most important single items someone will look at in evaluating a Company Earnings before interest, tax, depreciation, and amortization Sometimes used as a proxy for free cash flow because it will allow you to determine how much cash is available from operations to pay interest, capital expenditures, etc. Also used as multiple in valuation such as EV/EBITDA Used in other ratios as well such as leverage ratios (total debt / EBITDA)

IF YOU HAVE TWO COMPANIES THAT ARE EXACTLY THE SAME IN REVENUE, GROWTH, RISK, ETC. BUT ONE IS PRIVATE AND ONE IS PUBLIC, WHICH COMPANY'S SHARES WOULD BE HIGHER PRICED?

public company is likely to be priced higher for a couple of reasons main reason is the liquidity premium investors will pay for the ability to trade their stock quickly and easily on the public exchanges second reason is the sort of "transparency premium" that derives from the public company's requirement to make their audited financial documents public

Why has deferred revenue come under greater focus from the IRS, SEC and investor community?

publicly traded technology companies that are highly valued by investors operate with a monthly or annual license/subscription model Although demonstrates solid customer retention, delivery of this good/service consumes resources from the business, thus reducing available WC to grow the company

WHAT IS A DEFERRED TAX LIABILITY AND WHY MIGHT ONE BE CREATED?

tax expense amount reported on a company's income statement not actually paid in cash during that accounting period, but expected to be paid in the future occurs when a company pays less in taxes to the government than they show as an expense on their income statement can be caused due to differences in depreciation expense between book reporting (GAAP) and tax reporting

WHAT IS ENTERPRISE VALUE?

value of an entire firm, both debt and equity Simplified Formula: EV = Market Value of Equity + Debt + Preferred Stock + Minority Interest - Cash

Growth Rate

will typically be proxied by the GDP growth rate used in the perpetual growth formula