Private Equity
What is it called when a private equity firm buys a company using mostly borrowed money?
leveraged buyout (LBO)
What is the popular tv show simulated around venture capital investments
Shark Tank
What is the difference between a "bull market" and a "bear market"?
A bull market is when prices are rising, while a bear market is when prices are falling.
True or False: In DCF analysis, future cash flows are adjusted for the time value of money.
True
What is the fundamental equation of accounting
assets=liabilities + equity
True or False: Private equity firms usually invest in public companies listed on the stock market.
False
What do venture capitalists usually receive in exchange for their investment in a startup?
An ownership stake (equity) in the company.
What is a "blue-chip stock"?
A stock of a large, well-established, and financially sound company with a history of reliable performance.
What is the difference between DCF valuation and Relative valuation?
DCF valuation is based on a company's future cash flows, while relative valuation compares the company to similar firms.
What are the three financial statements?
Income, Balance, Cash flow
What is a leveraged buyout (LBO)?
It is the acquisition of a company using a significant amount of borrowed money to meet the cost of acquisition. (Any Variation)
What is a "Series A" funding round?
It is the first significant round of venture capital financing for a startup, following seed funding
The Dow Jones Industrial Average is an index that tracks 35 large U.S. companies. True or False?
False
Which financial metric is often used as the discount rate in DCF calculations?
Weighted Average Cost of Capital (WACC)
How do the statements connect
any interpretation
What are the two types of partners:
general partners and limited partners
How do venture capital firms usually exit their investments?
Through an Initial Public Offering (IPO) or acquisition by another company.
What is a mutual fund?
A pool of money collected from many investors to invest in stocks, bonds, or other assets.
What is the impact of a higher discount rate on the present value in a DCF model?
It decreases the present value of future cash flows.
If you only had 1 statement what is the best financial statement to use when reviewing the overall health of the company?
Use the Cash Flow Statement to assess the health of a company because it gives a true picture of how much cash the company is actually generating, independent of all the non-cash expenses you might have. - Cash flow is the #1 thing you care about when analyzing the overall health of any business
What is an action or strategy you can take to improve the IRR in an LBO?
● Lowering the initial purchase price of the company, which reduces the cash investment
● Improving the exit multiple, which increases the funds received
● Increasing leverage, which reduces the amount of upfront investment required
● Conducting a dividend recapitalization
● Exiting the investment earlier
● Accelerating the company's growth, which should increase EBITDA and the exit multiple
● Improving margins, which has the same effects as faster growth ● Realizing synergies with other portfolio companies or rolling in new acquisitions
What is it called when a startup is valued at over $1 billion?
A unicorn
What does NASDAQ stand for?
National Association of Securities Dealers Automated Quotations.
How does inflation affect the discount rate used in a DCF analysis?
Higher inflation generally leads to a higher discount rate.
Assuming a 30% tax rate, walk me through 3 statements with a: $50 increase in stock-based compensation
IS...
Pre-tax income down by 50, NI down by 35
CF.S..
NI down by 35, add back 50 in CFO since SBC is non-cash expense, net change in cash is up 15 Finally,
BS...
A: Assets up by 15; cash up 15
L: No change in liabilities
SE: Shareholder's Equity up by 15; Stock-based compensation up 50 and NI down 35 ...and the Balance Sheet balances