Accounting
This financial statement allows the user to see how cash is coming in and out of the company.
What is the statement of cash flows?
What is the formula for enterprise value?
Enterprise value = Market cap + Debt + Minority interest + Preferred stock - Cash
This ratio is typically calculated by doing EBIT/interest expense. It indicates how easily a company can cover it's interest expenses.
What is the interest coverage ratio?
What is the cost of equity formula?
rfr + beta*(rate of company - rfr)
PCE. It reflects the prices of goods that consumers are purchasing. It is flexible to substitutes and covers a broader range of spending.
How does $10 increase in deferred revenue affect 3 statements?
No change to IS. +$10 assets (cash). +$10 liabilities (DR). +$10 cash flows (operating)
Can you use Equity Value/EBIDTA like we use EV/EBIDTA? Explain why or why not
Equity Value/EBIDTA is not a good metric to use when spreading comps because equity value is only attributable to equity holders and capital structures vary.
This type of bankruptcy provides for reorginization/resturcturing of a business. The debtor usually proposes a plan of reorginzation to keep the business alive and pay creditors over time.
What is Chapter 11 bankruptcy? (Bonus: what bankruptcy forces a company to liquidate?)
What are synergies and give an example.
When acquisition provides higher value than the parts individually. Revenue synergies - company cross-sells to new customers. Cost synergies - combined company consolidates (staff, location, buildings) Bonus: which one is preferred?
These components add up to the Gross Domestic Product
Consumption + government spending + investments + net exports
What is working capital and how do you calculate it?
Working capital is a measure of a company's ability to pay of its current liabilties with current assets.
Current Assets - Current liabilities (Bonus: is cash included, why or why not)
A company has 80m in ev, 30m in cash, 20m in debt, and 5m shares. What is the stock price?
80m - 20m + 30m = 90m
90m/5m = $18/share
This type of financing occurs when a company has filed for chapter 11 bankruptcy, but still holds ownership of assets. The loan is secured against these assets.
What is debtor in possession (dip)? Bonus: what is the colloquial term for when a creditor becomes superseded by another, often occurs during DIP financing.
This is called an impairment (specifically goodwill impairment). Readjust the goodwill to its impaired value.
What is the current SOFR rate?
5.32% (as of 4/4/24)
How can a company have a positive net income but still go bankrupt?
A lot of ways to answer. Unmanageable debt, market volatility, poor cash flow (bonus: How can company have poor cash flow but profitable?)
If you were to look at Facebook back in 2004 while they had no profits or revenue, how would value it?
You would use comparable companies and precedent transactions and look at industry-relevant multiples. (EV/Unique visitors and EV/Pageviews)
This is the imposition (forcing) of a bankruptcy reorganization plan by a court despite objections by creditors.
What is a cramdown?
Why do deferred tax liabilites get created during M&A?
When assets are written up during M&A and it's fair value is higher than book value, causing higher depreciation expenses help save in taxes in short term, but must be paid later.
This is a monetary policy that increases liquidity in the market by the purchase of securities.
A company has $100 of debt with 10% interest rate. Half is paid in cash and the other half is PIK. How does it affect the 3 statements? (assume 40% tax rate)
IS: ($10) interest expense, +$4 tax shield, ($6) NI
CFS: ($6) in NI, add back $5 in non cash expense (PIK) ($1) in cash flows
BS: ($1) on cash and +$5 in debt (PIK), ($6) in RE
What is the mid-year convention dcf? Does it produce a lower or higher valuation compared to a conventional DCF and why?
It records the cash flows in the middle of the year (1/(1+wacc)^period#-.5)). It produces a higher valuation bc it moves cf nearer (think time value of money).
This type of loan are senior secured loans with first priority lien, however are paid after standard first lien loans. They are typically packaged with first-lien debt and recently have seen popularity in distressed financing transactions.
What are first in, last out (FILO) loans.
The company, Tao Bio, has an EPS of 3 and 400m shares. Soukas Pharma has an EPS of 1.5 and 200m. Tao Bio acquires Soukas Pharma, assuming the new entity has 600m shares, was the deal accretive or dilutive? Assume an all-equity deal.
Dilutive. 3*400 = 1.2B 1.5*200=300m 1.2b+300m=1.5b 1.5b/600m=2.5 EPS. The new eps is lower than Tao Bio's og EPS.
This is the Fed's lending facility and provides liquidity to banks that are under stress. However, it is known as the "lender of last resorts" and alerts depositors of solvency issues, leading to runs.