Corporate Finance Course summary and study guide PDF

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Summary

This is a comprehensive list of all the content discussed in the Corporate finance course, including sample problems and explanations. This covers beta, evaluating companies and calculating enterprise values....

Description

Unlevered beta- without impact of debt to company Why stock prices go up People buy stocks, increases demand Revenue and the probability for future earnings. Less supply then there is demand. Asset value is driven by the size, time and riskiness of the cash flows LTM revenue  TEV/LTM Revenue multiple Projected revenue  TEV/NTM Revenue multiple LTM EBITDA  TEV/LTM EBITDA multiple Projected EBITDA  TEV/NTM EBITDA multiple LTM Net Income  P/LTM EPS multiple (equity value calc) Projected Net Income  P/NTM EPS multiple (equity value calc) Relationship between NTM and LTM multiples Next 12 months and Last 12 Months Use NTM multiple for growth companies, Use LTM multiple for established comps beta of cash? 0 Leverage do to beta adding debt increases overall levered beta What is a 10K Annual filing required by the SEC, Contains financial info, business info, organization structure, risk factors 3 ways to make money in an LBO lower debt amount, increase margins, increase the multiple 3 questions on which financial statement would you find Inventory ( Bal), EBIT (Inc), etc Balance Sheet: Assets (Cash, A/R, Inv) +Liabilities (Notes Pay, Accts Pay) = Equity (common stock, RE) Income Statement: Revenues (sales) – Expenses (cogs, interest, wages) = Net Income Find EBITDA and EBIT on the IS Statement of Cash Flows: Operating (depreciation expense, changes in AR, inventory, prepaid exp, AP) Investing (change in PPE, CapEx) Financing (sale of shares, issue bonds, retire debt) Best valuation approach for high growth company with negative earnings DCF/Income Approach Best valuation approach For real estate holding company Asset approach Best valuation approach for going concern private with similar public competitors market approach Proxy for a risk free rate in business vals 10 yr treasury bonds Know what impact on Taxes and net income is from extending the depreciable life on an asset, and impact on cash flow Taxes  increase Net Income decrease Free Cash Flow decrease See other side for all ex: Given brief finc statement information, income, balance sheet Calculate a multiple Enterprise Value = market cap + debt + minority interest + preferred stock – cash Enterprise Value / EBITDA Enterprise Value + Excess Cash – Debt Outstanding – Preferred Stock – Minority Interest = Equity Value / common shares outstanding = equity value per share equity value per share if raise additional debt- Adding debt would lower the equity value per share Adjust a multiple for some nonrecurring fees Net income - unusual expenses = adjusted net income

calculate enterprise value starting with net income multiple EV= Net income * P/NTM EPS multiple = Equity Value Equity Value + Debt – Cash = Enterprise Value Debt multiple- you want declining yoy to show paying off debt Unlevered beta= levered Beta / [1+ (D/E) * (1-tax rate] Relevered beta= unlevered Beta * [1 +(1-tax rate)(D/E)]

W A CC =

D E kd (1 - T m ) + k e V V

Cost of equity CAPM = risk free + Beta(risk market- risk free) Calculating equity value after 3 year period assuming cash is not distributed (like lbo problem went over in class) EBITDA in year 3 * (EV/EBITDA) = Enterprise Value at Exit EV at exit – Debt + Cash = Equity Value at Exit Cash on cash return = Equity value at exit / equity value at entry Orderly liquidation value calculation Assets: Cash is always most liquid (100%) Liquidity flows with assets from the top down (AR 80%, Work in Prog inv 80%, long term inv 25%) Goodwill is always 0%, PPE  market appraisal gives a big write up here to market value Liabilities: all 100% except deferred tax liabilities is 0% Equity Value by orderly liquidation = Total assets – Total liabilities Converting from control premium to marketable minority equity value Discount for lack of marketability calculation

DLOC = 1 – [1 / (1+Control Premium)] Total Discount = 1 –[(1 – DLOC) x (1 – DLOM)]...