Fund Trivia
Which MEF members have blacked out during sidewalk slammers
JP, Liam, Marie, Veda, Sophia, Ada, Anthony, (Sid, Kaiji, Shae)
If you could only have 1 financial statement, what would it be?
Cash flow statement. We care about cash as investors.
Tell me the formula of enterprise value and what happens when a company issues $100M of equity?
EV = market value of equity + debt - cash (plus preferred shares + minority interest); no change because +$100M equity -$100M cash
What is the yield curve and what does it illustrate? Also what is the relationship between rates, price, and yield?
Yield curve is US treasuries of different maturities and their respective yield. This can be an indicator of recession (inverted) or a normal (normal) economy. Rates and yields move together, price moves opposite
What is the dual mandate of the Fed with numbers (has to be a first semester with no discussion beforehand)?
Price Stability (2% Inflation); Maximum Sustainable Employment (4% Unemployment)
How many people in MEF are twins? And who are they?
4 Mike, Tori, Dennis. Liam
Give 3 different connections through the 3-statements.
Net income, cash, debt, PPE/capex, working capital, dividends
What is the formula for WACC and what is it conceptually?
WACC = (weight of equity * cost of equity) + (weight of debt * cost of debt)(1 - tax rate); required rate of return for debt and equity investors
What is the cut off point for investment grade and high yield bonds?
BBB-
What happened with SVB?
Due to low interest rates caused by COVID, many businesses deposited more cash and since SVB particularly focuses on startups they received significantly more deposits, they put these deposits into long term government bonds. When interest rates rose, bond prices dropped and SVB was sitting on massive losses due to this. Then their credit rating got downgraded and their customers had a run on the bank since they had balances uninsured by the FDIC, SVB was unable to cover the money being pulled out in cash and they filed for bankruptcy.
How do you pronounce CJ’s real name?
Cyril (sir-el)
Walk through $10 decrease in depreciation through the 3-financial statements? Give 3 different connections through the 3-statements
IS: Pre-Tax Income: +$10, 40% tax rate, NI = +$6; CFS: NI = +6 - 10 depreciation = -$4 change in cash; BS: Cash = -$4 + $10 increase in PPE = $6 assets = $6 net income in retained earnings
Name 5 characteristics that make a company a good LBO target.
Strong, predictable free cash flow; mature industry/company, clean balance sheet, strong management team, low working capital requirement, low future capex, feasible exit, strong competitive advantage and market position, possibility of selling underperforming assets, ability to scrap, margin improvement
What is the order of payments during a liquidity situation?
Asset Based Loans, Senior Secured Debt, Senior Unsecured Debt, Subordinated Mezzanine Debt, Preferred Equity, Common equity
What are the three major Equity Indexes and what differentiates each of them?
S&P 500: 500 largest companies that trade on an exchange, is capitalization weighted; NASDAQ: Contains almost every stock that trades on the NASDAQ Exchange, heavily weighted towards tech, is capitalization weighted; Dow Jones: Price of the Dow is the sum of the 30 large, blue-chip stocks, is not capitalization weighted
Name the other half of MEF twins
Chris, Nicole, Hannah, Daniel
Walk from revenue to levered free cash flow.
Revenue - COGS - Operating expense = EBIT * (1 - tax rate) = EBIAT + D&A - change in working capital - CapEx - interest expense
What are the main valuation methods to use to value a private company? Out of those, if you are buying another company and you can only use one method, what would it be?
Precedent transaction, public comparables, DCF, LBO; Precedent transactions
What is a covenant? And examples of what can be on them
A bond covenant is a legally binding term of agreement between a bond issuer and a bondholder. Bond covenants are designed to protect the interests of both parties. It can stop issuance of dividends, restricting management fees from being paid, and the amount of debt a company can have.
What are the three main types of Synergies experienced with M&A activity, explain each?
Revenue Synergies: Sell more products &/or services in total than they would have otherwise; Cost Synergies: Reduce overall operating costs by combining the businesses; Financial Synergies: Reduce overall financial costs including cost of capital
Which 2 fund members’ dads have the same first name?
Liam and JP
Can you tell me what the 4 main financial statements are? Shoutout Thanos.
(1) balance sheets; (2) income statements; (3) cash flow statements; and (4) statements of shareholders' equity
Walk me through a DCF. (Has to be a first semester)
A DCF values a company based on the PV of its Cash Flows and the PV of its Terminal Value
You start by projecting our financials with assumptions about revenue growth, expenses, and working capital, Start with EBIT, Subtract Income Tax Expenses, End with EBIAT, Add back D&A, Less changes in WC, Less CapEx, End at Unlevered FCF (sum FCF projections), Discount Unlevered FCF using a discount rate (WACC), Calculate Terminal Value (2 methods), Discount Terminal Value to PV, Add PV of FCF to PV of TV = Enterprise Value, Less Net Debt = Equity Value, Divide by Diluted Shares Outstanding
If we have EBITDA = 40M, EV/EBITDA = 5x, Senior Secured Debt = $150M, and Unsecured Debt of $100M then where would the unsecured debt trade in pure recovery?
50%
Who have been the last 4 Chairs of the Fed in order from most recent to least recent?
Jerome Powell, Janet Yellen, Ben Bernanke, Alan Greenspan