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An in-depth analysis of the cash flow statement, a crucial financial statement that helps understand a company's liquidity and financial health. It covers key concepts such as cash from operations (cfo), cash from financing activities (cff), working capital, and the calculation of interest expense and enterprise value. The document also discusses various valuation methods, including discounted cash flow (dcf) analysis and comparable company analysis. Additionally, it covers topics related to leveraged buyouts (lbos) and accounting adjustments. This comprehensive resource would be valuable for students and professionals studying corporate finance, financial analysis, and valuation.
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obligations
ating efficiency) and to its revenue (operating profitability)
Sales Outstanding): AR/Credit Sales * days in period days in
period/receivables turnover
Outstanding)
What is generally not considered to be a pre-tax non-recurring (unusual or infrequent) item? - Correct answer-Extraordinary gains/losses
what is false about depreciation and amortization - Correct answer-D&A may be classified within interest expense
Company X's current assets increased by $40 million from 2007-2008 while the companies current liabilities increased by $25 million over the same period. the cash impact of the change in working capital was - Correct answer-a decrease of 15 million
the final component of an earnings projection model is calculating interest expense. the calculation may create a circular reference because - Correct answer-interest expense affects net income, which affects FCF, which affects the amount of debt a company pays down, which, in turn affects the interest expense, hence the circular reference
a 10-q financial filing has all of the following characteristics except - Correct answer-issued four times a year.
Depreciation Expense found in the SG&A line of the income statement for a manufacturing firm would most likely be attributable to which of the following - Correct answer-computers used by the accounting department
If a company has projected revenues of $10 billion, a gross profit margin of 65%, and projected SG&A expenses of $2billion, what is the company's operating (EBIT) margin? - Correct answer-45%
A company has the following information, 1. 2014 revenues of $5 billion, Accounts receivable of $400 million, 2014 accounts receivable of $600 million, what are the days sales outstanding - Correct answer-36.
A company has the following information:
Which of the following is true - Correct answer-Coca Cola's brand name is not reflected as an intangible asset on its balance sheet
A company has the following information:
non-controlling interest - Correct answer-is an expense on the income statement and equity o the balance sheet
A company has the following information:
in order to find out how much cash is available to pay down short term debt, such as revolving credit line, you must take - Correct answer-beginning cash balance + pre-debt cash flows - min. cash balance - required principal payments of LT and other debt
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year. Calculate Company X's implied Enterprise Value by using the discounted cash flow method: - Correct answer-2951.2 million
On January 1, 2014, shares of Company X trade at $6.50 per share, with 400 million shares outstanding. The company has net debt of $300 million. After building an earnings model for Company X, you have projected free cash flow for each year through 2014 as follows:
Year 2014 2015 2016 2017 2018 2019 2020 Free Cash Flow 110 120 150 170 200 250 280
You estimate that the weighted average cost of capital (WACC) for Company X is 10% and assume that free cash flows grow in perpetuity at 3.0% annually beyond 2020, the final projected year. According to the discounted cash flow valuation method, Company X shares are: - Correct answer-.13 per share overvalued
the formula for discounting any specific period cash flow in period "t"is: - Correct answer-cash flow from period "t" divided by (1+discount rate raised exponentially to "t"
the terminal value of a business that grows indefinitely is calculated as follows - Correct answer-cash flow from period "t+1" divided by (discount rate-growth rate)
the two-stage DCF model is: - Correct answer-where stage 1 is an explicit projection of free cash flows (generally for 5-10 years), and stage 2 is a lump-sum estimate of the cash flows beyond the explicit forecast period
disadvantages of a DCF do not include - Correct answer-free cash flows over the first 5-10 year period represent a significant portion of value and are highly sensitive to valuation assumptions
the typical sell-side process - Correct answer-shorter than the buy side, buyer secures financing, and doesn't involve id'ing potential issues to address such as ownership and unusual equity structures, liabilities, etc.
the following happened in a recent M&A transaction: 1. PP&E of the target company was increased from its original book basis of $600 million to $800 million to reflect fair market value for book purposes in accordance with the purchase method of accounting. 2. no "step-up" for tax purposes. 3. original tax basis of $650 million. assuming a corporate tax rate of 35% for book purposes, the company should record the following - Correct answer-A deferred tax liability equal to $52.5 million
An acquisition creates shareholder value: - Correct answer-when a company acquires a business whose fundamental value is higher than the purchase price
A good LBO candidate has which of the following characteristics? - Correct answer-Little to no existing leverage, steady cash flows and little investment in business through capex and working capital
Which of the following is NOT a disadvantage of performing an LBO analysis? - Correct answer-Stand-alone LBO may overestimate strategic sale value by ignoring synergies with acquirer
While equity contribution went as low as the single digits in the 1980's, the current split between equity and debt in an LBO deal is best characterized as: - Correct answer-Equity - 35%; Debt 65%
When an LBO sponsor wishes to exit its investment in 5 years, one way to find the equity value of a company at the LBO sponsor's exit year is to: - Correct answer- Use an Enterprise Value/Sales multiple to find Enterprise Value and then subtract net debt Use an Enterprise Value/EBITDA multiple to find Enterprise Value and then subtract net debt Use a Price/Earnings multiple to find Equity Value
Under recapitalization accounting - Correct answer-The purchase price is reflected as a reduction to equity
which of the following is true about senior debt - Correct answer-None of the Below. Has the least restrictive covenants because it is secured by the company's assets Since it is secured by the company's assets, lenders prefer to have the debt outstanding over time in order to generate more interest Usually uses PIK securities or come with warrants like mezzanine debt
On December 30, 2013:
On December 31, 2013:
On December 30, 2013:
On December 30, 2013:
Company A's major competitors are trading at an average share price / 2014 Expected EPS of 15.0x. Using the comparable company analysis valuation method, Company A shares are: - Correct answer-2.5 per share undervalued
When looking to do a transaction comp analysis, some of the merger-related filings that should be looked at include each of the following except: - Correct answer-Form s-
when determining value for a company based on transaction rather than trading comps, one of the key differences that will affect the value is - Correct answer- premium paid for control of the business
Garth's Micro Brewery, whose shares are currently trading at $40 per share, is considering acquiring Wayne's Beer Bottling Co. You have compiled a group of comparable transactions within the beer bottling space and have calculated that since 2014, acquisitions similar (or comparable!) to the one Garth's is currently considering have had transaction values (offer value of target plus any target debt, net of cash) that are, on average, 8.0x target's EBITDA.
be net income to get to CFO: subtracted
net income to get to CFO: added
asset sales
sales of debt/ equity security
outflow)
-Common stock issued / repurchased (cash inflow / outflow)
-Payment of common & preferred dividends (cash outflow)
materially significant event such as an earnings press release, an acquisition,
disposal of assets, bankruptcy, etc.
oPart 2, item 6. Selected financial data oPart 2, item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operation oPart 2, item 8.
Financial statements and supplementary data
produced or offered by a company
products, companies should assign individual values to each of the bundled
components
Method
the percentage of total work completed during the accounting period
-Equipment used for selling (cash register)
-Executive salaries
-Legal expenses
developing new products or procedures
systematic decrease of historical value
Machinery & Equipment 3-20 yrs
Furniture & Fixtures 5-10 yrs
Computer Software & Hardware 3-5 yrs
asset being depreciated is directly tied with manufacture or procurement or
selling or marketing: COGS or SG&A
sal- vage value)/useful life
ation in early years
-declining balance, sum of years digits, units of production
number of years that these assets are expected to help generate revenue for
the company
Franchise, membership, licenses
