Valuation
What does DCF stand for
Discounted Cash Flow
What is the difference between the 10-K and 10-Q?
10-K: A 10-K is the annual report required to be filed with the SEC for any public company in the U.S. The report is comprehensive and includes a full overview of the business operations, commentary on recent performance by management, risk factors, disclosures on changes in accounting policies – and most importantly, the three core financial statements with supplementary data.
10-Q: A 10-Q refers to the quarterly report required to be filed with the SEC. Compared to the 10-K, this report is far more condensed in length and depth, with the focus being on the quarterly financials with brief sections for MD&A and supplementary disclosures.
Can you define M&A and explain the difference between a merger and an acquisition?
Mergers and acquisitions (M&A) is an umbrella term that refers to the combination of two businesses. To buyers, M&A serves as an alternative to organic growth, whereas for sellers, M&A provides an opportunity to cash out or share in the newly formed entity's risk/reward. The two terms are often used interchangeably but have some minor differences: Merger: A merger suggests the combination of two similarly sized companies (i.e., "merger of equals"), where the form of consideration is at least partially with stock, so shareholders from both entities remain. In most cases, the two companies will operate under a combined name (e.g., ExxonMobil, Kraft Heinz, Citigroup), whereas sometimes the new combined entity will be renamed. Acquisition: An acquisition typically implies the target was of smaller-size than the purchaser. The target's name will usually slowly dissipate over time as the target becomes integrated with the acquirer. In other cases (e.g., Salesforce's acquisition of Slack, Google's acquisition of Fitbit), the target will operate as a subsidiary to take advantage of its established branding.
What company has the largest allocation in the CTC portfolio?
Apple @ 8.8%
What is the largest IPO ever?
SpaceX holds the record for the largest IPO ever, raising $85.7 billion in June 2026.
How do you calculate equity value
Price Per Share x Total Shares Outstanding
What are the three financial statements
Balance sheet, income statement, cash flow statement
What are some potential reasons that a company might acquire another company?
Value Creation from Revenue and Cost Synergies, Ownership of Technology Assets (IP, Patents, Proprietary Technology), Talent Acquisitions (New Skilled Employees), Expansion in Geographic Reach or into New Product/Service Markets, Diversification in Revenue Sources (Less Risk, Lower Cost of Capital), Reduce Time to Market with New Product Launches, Increased Number of Channels to Sell Products/Services, Market Leadership and Decreased Competition (if Horizontal Integration), Achieve Supply Chain Efficiencies (if Vertical Integration), Tax Benefits (if Target has NOLs)
What company has the all time highest percentage return?
Apple - 2768%
This 2000–2002 collapse followed the bursting of a massive bubble in technology stocks.
Dot-com Crash
How do you calculate enterprise value?
Enterprise Value = Equity Value + Net Debt + Preferred Stock + Minority Interest
How would a $10 increase in depreciation flow through the financial statements?
The depreciation expense will be embedded within either the cost of goods sold or the operating expenses line item on the income statement. IS: When depreciation increases by $10, EBIT would decrease by $10. Assuming a 30% tax rate, net income will decline by $7. CFS: At the top of the cash flow statement, net income has decreased by $7, but the $10 depreciation will be added back since it's a non-cash expense. The net impact on the ending cash balance will be a positive $3 increase. BS: PP&E will decrease by $10 from the depreciation, while cash will be up by $3 on the assets side. On the L&E side, the $7 reduction in net income flows through retained earnings. The balance sheet remains in balance as both sides went down by $7.
What are the differences among vertical, horizontal, and conglomerate mergers?
Vertical Merger: A vertical merger involves two or more companies that serve different value chain functions. From the increased control over the supply chain, the combined entity should theoretically eliminate inefficiencies. Horizontal Merger: A horizontal merger comprises a merger amongst companies directly competing in the same (or very similar) market. Thus, following a horizontal merger, competition in the market decreases (e.g., Sprint & T-Mobile merger). Notable benefits that stem from a horizontal merger are the increased geographical coverage to sell products/services and an increase in pricing power. Conglomerate: A conglomerate refers to the combination of multiple business entities operating in unrelated industries for diversification purposes – an example would be Berkshire Hathaway.
What is the CTC investable universe
Russell 1000
This cryptocurrency exchange collapsed in November 2022 after customers discovered they could not withdraw their funds.
FTX
Among the DCF, comparable companies analysis, and transaction comps, which approach yields the highest valuation?
Transaction comps analysis often yields the highest valuation because it looks at valuations for companies that have been acquired, which factor in control premiums.
A company acquired a machine for $5 million and has since generated $3 million in accumulated depreciation. Today, the PP&E has a fair market value of $20 million. Under GAAP, what is the value of that PP&E on the balance sheet?
The short answer is $2 million. Except for certain liquid financial assets that can be written up to reflect their fair market value ("FMV"), companies must carry the value of assets at their net historical cost. Under IFRS, the revaluation of PP&E to fair value is permitted. Even though permitted, it's not widely used and thus not even well known in the US.
Why should companies acquired by strategic acquirers expect to fetch higher premiums than those selling to private equity buyers?
Strategic buyers can often benefit from synergies, which enables them to offer a higher price. However, the recent trend of financial buyers making add-on acquisitions has enabled them to fare better in auctions and place higher bids since the platform company can benefit from synergies similar to a strategic buyer.
When was CTC founded? Within 2 yrs.
2004
In 1992, this investor famously made more than $1 billion betting against the British pound.
George Soros
When calculating enterprise value, why do we add net debt?
When acquiring a company, a buyer must not only pay the shareholders (equity value) but also settle the company’s debt. However, the buyer also gains access to the company’s cash, which can be used to offset debt. Therefore, net debt adjusts the total purchase price to reflect the actual funding required to acquire the business. For example, a company with $50 million in debt and $10 million in cash has a net debt of $40 million, which is added to the equity value to calculate EV.
If a company has a ROA of 10% and a 50/50 debt-to-equity ratio, what is its ROE? Imagine a company with $100 in total assets.
A 10% return on assets (ROA) would imply $10 in net income. Since the debt-to-equity mix is 50/50, the return on equity (ROE) is $10/$50 = 20%.
Can you explain what the “winner’s curse” is in M&A?
The so-called winner’s curse in M&A is the tendency for the winning bidder to have paid far beyond the target's fair value. While a certain premium is expected during competitive processes, this can often be elevated to irrational levels. The buyer may later feel buyer’s remorse and receive scrutiny for overpaying, especially if the acquisition doesn't pan out as expected, which can lead to write-downs of the acquired assets. Financial buyers also experience greater difficulty meeting their fund's required returns threshold if a higher multiple was paid.
Name every stock we bought last semester
Abercrombie & Fitch, Ralph Lauren, Emerson Electric, & Chevron
On October 19, 1987, the Dow Jones fell approximately this percentage in a single day—the largest one-day percentage decline in its history.
22.6%