Fund Fun
Which fund member is on the Club Baseball team?
Tobin
What are the three main financial statements?
Income statement, balance sheet, and statement of cash flows
What is liquidity?
How freely a security can be bought and sold on the open market
Also how quickly an asset can be converted into cash
What is the cut off point for investment grade and high yield bonds?
Below BBB- = HY
What is the dual mandate of the Fed with numbers?
Price Stability/moderate long-term interest rates (2% Inflation), Maximum Employment
Which MFIF member is scared of heights?
Alex
If you can only look at two financial statements to assess a company, which two would you use?
Income Statement and balance sheet - you can create the statement of cash flows from them.
How do you walk from enterprise value to equity value?
Enterprise value - debt - preferred stock - noncontrolling interest + cash
If rates are expected to rise, should you buy a 10-year coupon or a 10-year zero coupon bond?
What was the core CPI YoY figure/inflation in September?
Which fund member broke both wrists at the same time?
Adam
Give 3 different links on the financial statements
Net income flows into retained earnings and then to the top line of the cash flow statement/cash from operations
Depreciation is added back and CapEx is deducted on the cash flow statement leading to the PP&E on the balance sheet
The cash flow statement builds up to it, and it connects to the cash line on the balance sheet
Why do we add the risk-free rate in CAPM?
You use the risk-free rate as a baseline for what an equity investor would expect and plus a premium added, so the remaining part of the equation. The risk-free rate is standard for risk-free investment, so an equity investor would expect to make above that in their investment.
Which type of covenant requires a company to maintain/achieve a certain EBITDA level?
Affirmative
What is the difference between LIBOR and SOFR why did the transition occur?
LIBOR (London Interbank Exchange Rate) is a rate derived from a survey of major banks in London. SOFR (Secured Overnight Financing Rate) is a rate based on overnight Treasury transactions. They differ in that SOFR is based on real transactions and is a risk free rate, while LIBOR has some credit risk from the banks. The transition needed to occur due to the manipulation of the LIBOR rate.
Which MFIF member has cried at a mixer?
Jack Stew
Walk through how a $10 decrease in depreciation impacts the financial 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
Walk me through a DCF
A DCF values a company based on the PV of its Cash Flows and the PV of its Terminal Value
Project your free cash flows out 5-10 years and discount using WACC. Sum up the PVs of the cash flows. Calculate Terminal Value (either terminal value multiple or growth method), Discount Terminal Value to today, Add PV of FCF to PV of the terminal value to get the Enterprise Value, which you Less Net Debt from to get the Equity Value, Divide by Fully Diluted Shares Outstanding to get the equity value per share
Rank the debt in typical priority order:
A. Subordinated debt
B. Senior debt
C. Senior subordinated debt
D. Senior secured debt
D, B, C, A
Who have been the last four Chairs of the Fed?
Jerome Powell, Janet Yellen, Ben Bernanke, Alan Greenspan
Which fund member has gotten mugged/their phone stolen studying abroad?
Charlie
If a company has $8 EBITDA with a 12.5x EV/EBITDA multiple and a 75% LTV, what is the equity value?
$25
If a company issues a large amount of debt, how would that effect CAPM/cost of equity?
It would increase the cost of equity because the beta would go up (issuing a large amount of debt will increase the volatility of the stock)
A company has $60m in EBITDA and is trading at a 5x EV/EBITDA multiple. It has $150m in Senior Secured debt, $200m of Junior debt.
What would the debt be trading at and what would the equity be trading at?
Senior Secured = 100
Junior = 75
Equity = ~0
What are non-farm payrolls and why is it non-farm?
Non-farm is one of the most important days in the economic calendar and refers to all jobs excluding farm workers, sole proprietorships, private household workers, and military and intelligence employees. The above items are stripped out to give a gauge of the economy’s health. Farming is stripped out due to seasonality and difficulty of getting an accurate count.