Accounting
This financial statement reports a company’s revenues, expenses, and profits or losses over a period of time, providing insight into the company’s operational performance.
What is the Income Statement?
When calculating Enterprise Value, this is subtracted from the total value of a company's equity and debt because it represents a non-operational asset that is not needed to run the business.
What is Cash?
This graph outlines the different types of valuation methodologies and their respective valuation ranges.
What is a football field?
These are the three primary ways to fund a deal.
What are cash, debt, and stock?
In an LBO model, this term refers to the projected percentage return that equity investors expect to achieve when they exit the investment.
What is IRR?
This method of accounting is used to record revenue and expenses when they are incurred, rather than when cash transactions occur.
What is Accrual Accounting?
Finding the Fully Diluted Share Count is required when calculating the price per share in an acquisition, as it factors in the impact of stock options and warrants on the number of fully diluted shares outstanding, using this method.
What is the Treasury Stock Method?
These methods are used in the DCF model to calculate the Terminal Value.
What is the Gordon Growth Model & Exit Multiple Method?
This is an all encompassing metric to evaluate the total impact of a transaction.
What is EPS?
This is an attractive quality of an LBO candidate.
What are strong and predictable cash flows?
This is created when Book Taxes > Cash Taxes.
What are Deferred Tax Assets?
These types of financial instruments are added back to Enterprise Value in an acquisition because they represent potential claims on a company's assets or earnings.
What are NCI and Preferred Stock?
This valuation metric compares a company’s Enterprise Value to its Revenue, and is useful for valuing high-growth companies that may not yet be profitable.
What is the EV/Revenue Multiple?
This type of deal happens when a larger, well-established company buys a smaller company to enter a new market or acquire new technology, often without the target company’s management being involved in the deal process.
What is a hostile takeover?
This occurs when a company increases its EBITDA margin through factors like operational efficiencies, cost reductions, or higher-margin products, leading to higher overall profitability without necessarily increasing revenue.
What is EBITDA expansion?
This item represents a future tax shield that could potentially reduce the acquirer's future tax liability, thus increasing the value of the business for the acquirer.
What is a Net Operating Loss (NOL)?
This ratio is used to measure the financial risk of a business and its ability to meet debt obligations.
What is the Debt / Equity Ratio?
These are the three areas of a DCF that are affected by the tax rate.
What are Unlevered Free Cash Flows, Tax Sheild on Debt, and Lever / Unlevering Beta in the CAPM?
This is the term used to describe the financial strategy of acquiring a company to achieve cost reductions, typically by eliminating redundant functions and assets.
What is Cost Synergy?
This financial metric is often used in LBO modeling to assess how much debt a company can carry in an acquisition, usually calculated as a multiple of EBITDA or EBIT.
What is Debt Capacity?
This accounting change can lead to higher COGS, lower net income, and reduced taxes in the short term, but also results in lower reported inventory values on the balance sheet.
What is the effect of changing from FIFO to LIFO?
In this situation, you would adjust Enterprise Value by accounting for items like surplus land, which are excluded from the core business valuation.
What is a Non Operating Assets Adjustment?
This is the method used to calculate Enterprise Value where the company is valued in different segments and then added together to find the total Enterprise Value.
What is a Sum-of-the-Parts Valuation?
This term refers to the difference between the price paid for an acquisition and the market value of the acquired company’s net assets.
What is Goodwill?
This key financial metric is used in an LBO to evaluate the company’s ability to meet its debt obligations, and is calculated by dividing EBITDA by Interest Expense.
What is an Interest Coverage Ratio?