Natural Resources
Which is cheaper, natural gas or coal?
Natural gas
I run, it runs, I stop, it runs. What is it
Walk me through the main line-items on each of the financial statements.
I/S: revenue and expenses, COGS, Operating Expenses, Operating Income, Tax and Interest Expense, Net Income
B/S: Assets, such as Cash, Inventory and PP&E; Liabilities, such as Debt and Accounts Payable; Shareholders’ Equity
CFS: Net Income, adjustments for non-cash expenses and working capital changes, cash flow from investing and financing activities, net change in cash
Name 2 multiples that could be used in a comps analysis.
P/S, P/E, EV/EBITDA, EV/EBIT, EV/EBITDAR, etc.
Who is this?
"I am legally certified to launch high power rockets"
Joyce
How does concentrated solar power work?
Plant focuses solar radiation to heat a material, which drives a heat engine.
The person who makes it has no need of it. The person who buys it has no use for it. The person who uses it can neither see nor feel it. What is it?
A Coffin
How do the 3 statements link together?
Net Income from the Income Statement flows into Shareholders’ Equity on the Balance Sheet, and into the top line of the Cash Flow Statement.
Changes to Balance Sheet items appear as working capital changes on the Cash Flow Statement, and investing and financing activities affect Balance Sheet items such as PP&E, Debt and Shareholders’ Equity. The Cash and Shareholders’ Equity items on the Balance Sheet act as “plugs,” with Cash flowing in from the final line on the Cash Flow Statement.
Why can’t you use Equity Value / EBITDA as a multiple rather than Enterprise Value / EBITDA?
EBITDA is available to all investors in the company – rather than just equity holders. Similarly, Enterprise Value is also available to all shareholders so it makes sense to pair them together.
Equity Value / EBITDA, however, is comparing apples to oranges because Equity Value does not reflect the company’s entire capital structure – only the part available to equity investors.
Who is this?
"Accidentally applied for sorority recruitment summer before freshman year (and even paid the $35 fee)"
Max
What does LCOE stand for and what is it sensitive to?
Levelized cost of energy, cost of capital, capital structure, location, type of plant, etc.
What English word has the first two letters signify a male, first three a female, and the first four signify a great man, and the whole word a great woman?
Heroine
What is the formula for WACC? How do you calculate Cost of Equity?
WACC = % equity * Cost of Equity + % debt * Cost of Debt * (1 - tax rate)
Cost of Equity = risk-free rate + beta * equity risk premium
Who is this?
"Hit a parked car, which turned out to be my friend's dad's car"
James
Describe the structure of a PPA
Utilities agree to purchase power at a fixed price, so that energy companies can guarantee demand for their plants.
What has a bank with no money and waves with no hands?
A river
What’s the difference between accounts receivable and deferred revenue?
Accounts receivable has not yet been collected in cash from customers, whereas deferred revenue has been. Accounts receivable represents how much revenue the company is waiting on, whereas deferred revenue represents how much it is waiting to record as revenue.
Walk me through a DCF :)
First, you project out a company’s financials using assumptions for revenue growth, expenses and Working Capital; then you get down to Free Cash Flow for each year, which you then sum up and discount to a Net Present Value, based on your discount rate – usually the Weighted Average Cost of Capital.
Once you have the present value of the Cash Flows, you determine the company’s Terminal Value, using either the Multiples Method or the Gordon Growth Method, and then also discount that back to its Net Present Value using WACC.
Finally, you add the two together to determine the company’s Implied Enterprise Value. Subtract Net Debt to back into Implied Equity Value and divide by number of shares outstanding to get Implied Share Price.
Who is this?
"I once got chased by the police for speeding but somehow managed to escape"
Victoria
What differentiates a renewable energy company from a conventional energy company (besides the renewable part)?
Conventional energy sources are largely commodified, while renewables depend on the specific technology that they have created.
You are in a room that is completely bricked in on all four sides, including the ceiling and floor. You have nothing but a mirror and a wooden table in the room with you. How do you get out?
You look in the mirror you see what you saw, you take the saw and you cut the table in half, two halves make a whole, and you climb out the hole
Let’s say Apple is buying $100 worth of new iPod factories with debt. How are all 3 statements affected at the start of Year 1, before anything else happens?
AND
What happens in Year 2, assuming an interest rate of 10% and depreciation of $10?
Year 1-
I/S: No change; CFS: CFF +100, CFI -100; BS: Debt +100, PP&E +100
Year 2-
I/S: Pre-Tax Income -20, NI -12 (40% tax rate); CFS: NI -12, Depr +10, Net Change -2; BS: Cash -2, PP&E -10, Retained Earnings -12
Two companies are exactly the same, but one has debt and one does not – which one will have the higher WACC?
The one without debt will have a higher WACC up to a certain point, because debt is “less expensive” than equity.
However, the above is true only to a certain point. Once a company’s debt goes up high enough, the interest rate will rise dramatically to reflect the additional risk and so the Cost of Debt would start to increase – if it gets high enough, it might become higher than Cost of Equity and additional debt would increase WACC. It’s a “U-shape” curve where debt decreases WACC to a point, then starts increasing it.
Who is this?
"I just ate a can of sardines"
Ben