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Valuation Methods
 
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When valuing a company as a going concern there are three main valuation methods used by industry practitioners: (1) DCF analysis, (2) comparable company analysis, and (3) precedent transactions. These are the most common methods of valuation used in investment banking, equity research, private equity, corporate development, mergers & acquisitions (M&A), leveraged buyouts (LBO) and most areas of finance. Click here to learn more about this topic: https://corporatefinanceinstitute.com/resources/knowledge/valuation/valuation-methods/
Discounted Cash Flow (DCF) Model – CH 3 Investment Banking Valuation Rosenbaum
 
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The discount cash flow analysis (DCF) is a fundamental valuation methodology broadly used by investment bankers, corporate officers, and other finance professionals. It is based on the principal that the value of a company can be derived from the PV of its projected free cash flow (FCF). While many videos cover the actual framework and how to build the excel model, the assumptions and thinking behind the model are often left to more “real world” examples. This is that example! Chapter 3 covered topics like; - How do you project revenues for a DCF model? - How many years do you project cashflows for? - What is the exit multiple method? - What is the perpetuity growth method? - How do you project EBITDA for a DCF model? - How do you project EBIT for a DCF model? - How do you project the NWC for a DCF model? - What is the mid-year convention? - How do you calculate unlevered free cash flow? For those who are interested in buying the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl, follow the Amazon link below; https://www.amazon.ca/Investment-Banking-Valuation-Leveraged-Acquisitions/dp/1118656210 If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles Videos referenced; Estimating Cost of Debt For WACC: https://www.youtube.com/watch?v=CSkPlxEe-dY Estimating Cost Of Equity For WACC: https://www.youtube.com/watch?v=ZigyWoDAMrE Projecting NWC; https://www.youtube.com/watch?v=2E1Hca2dVbI Why Is Your DCF Model Incorrect? https://www.youtube.com/watch?v=ByyK0AMuLxc
Views: 10215 FinanceKid
Leveraged Buyouts (LBOs) – CH 4 Investment Banking Valuation Rosenbaum
 
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A leveraged buyout (LBO) is the acquisition of a company, division, business, or collection of assets using debt to finance a large portion of the purchase price. The remaining portion of the purchase price is funded with an equity contribution by a financial sponsor. The ability to leverage the relatively small equity investment is important for sponsors to achieve acceptable returns. The use of leverage provides the additional benefit of tax savings realized due to the tax deductibility of interest expense. Questions answered in the video include? - What are private equity firms and how do they invest? - How does leverage impact the equity returns of a sponsor? - What is a leveraged buyout (LBO)? - How does changing the financing mix change overall returns? - What is the internal rate of return (IRR)? - What are the characteristics of a strong LBO candidate? - What are the available sources of LBO financing? For those who are interested in buying the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl, follow the Amazon link below; https://www.amazon.ca/Investment-Banking-Valuation-Leveraged-Acquisitions/dp/1118656210 If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 6190 FinanceKid
Dividend Discount Model - Commercial Bank Valuation (FIG)
 
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Why the Dividend Discount Model (DDM) is used to value commercial banks instead of the traditional Discounted Cash Flow (DCF) analysis. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" There are 3 main reasons why the DCF and the concept of Free Cash Flow (FCF) do not apply to commercial banks: 1. You can't separate operating vs. investing vs. financing activities - the lines are very blurry for a bank, since items like debt are more operationally-related and fund the bank's lending activities. 2. CapEx doesn't represent re-investment in the business, as it does for a normal company - for a bank,"re-investment" means hiring people, doing more lending, etc. 3. Working Capital represents something much different for a bank - the standard definition of Current Assets Excl. Cash Minus Current Liabilities Excl. Debt makes no sense, because for banks that includes tons of investments, securities, other borrowings, etc. so you could see massive swings... What You Do Instead - Use Dividends as a Proxy for Free Cash Flow Why? Because banks are CONSTRAINED by capital requirements - according to the Basel accords (I, II, III), they must maintain a certain "buffer" at all times to cover unexpected losses on their loans... So just like CapEx requirements, Net Income growth, and Working Capital constrain FCF for normal companies, the Tier 1 Capital / Tangible Common Equity / Total Capital requirements constrain dividends for banks. So we'll project a bank's regulatory capital, its asset growth, and its net income, and use those to project its dividends - then, discount, and sum up the dividends and discount and add the NPV of its terminal value. How to Set Up a Dividend Discount Model (DDM) 1. Make assumptions for Total Assets, Asset Growth, targeted Tier 1 (or other) Ratios, Risk-Weighted Assets, Return on Assets (ROA) or Return on Equity (ROE), and Cost of Equity. 2. Next, project Assets and Risk-Weighted Assets. 3. Then, project Net Income based on ROA or ROE. 4. Then, project Shareholders' Equity (AKA Tier 1 Capital) based on targeted capital ratio... 5. And BACK INTO dividends! Different from a normal company's DDM! Set dividends such that the minimum capital ratio is maintained, based on starting Shareholders' Equity and Net Income that year. 6. Flesh out the rest of the model - stats, growth rates, other metrics. 7. Discount and sum up dividends. 8. Calculate, discount, and add Terminal Value so that NPV = NPV of Terminal Value + NPV of All Dividends. 9. Calculate the Implied Share Price and compare to actual Share Price. Is the bank undervalued? Overvalued? What are the clues so far? What Next? Try it with a real company, using its historical financial information. Add more complex / realistic assumptions, based on industry research, channel checks, the bank's own strengths/weaknesses, etc. Add more advanced features - other ways to calculate Terminal Value, more accurate regulatory capital, mid-year discount and/or stub periods, stock issuances / repurchases, multiple growth stages, and so on.
WACC, Cost of Equity, and Cost of Debt in a DCF
 
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In this WACC and Cost of Equity tutorial, you'll learn how changes to assumptions in a DCF impact variables like the Cost of Equity, Cost of Debt. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" You'll also learn about WACC (Weighted Average Cost of Capital) - and why it is not always so straightforward to answer these questions in interviews. Table of Contents: 2:22 Why Everything is Interrelated 4:22 Summary of Factors That Impact a DCF 6:37 Changes to Debt Percentages in the Capital Structure 11:38 The Risk-Free Rate, Equity Risk Premium, and Beta 12:49 The Tax Rate 14:55 Recap and Summary Why Do WACC, the Cost of Equity, and the Cost of Debt Matter? This is a VERY common interview question: "If a company goes from 10% debt to 30% debt, does its WACC increase or decrease?" "What if the Risk-Free Rate changes? How is everything else impacted?" "What if the company is bigger / smaller?" Plus, you need to use these concepts on the job all the time when valuing companies… these "costs" represent your opportunity cost from investing in a specific company, and you use them to evaluate that company's cash flows and determine how much the company is worth to you. EX: If you can get a 10% yield by investing in other, similar companies in this market, you'd evaluate this company's cash flows against that 10% "discount rate"… …and if this company's debt, tax rate, or overall size changes, you better know how the discount rate also changes! It could easily change the company's value to you, the investor. The Most Important Concept… Everything is interrelated - in other words, more debt will impact BOTH the equity AND the debt investors! Why? Because additional leverage makes the company riskier for everyone involved. The chance of bankruptcy is higher, so the "cost" even to the equity investors increases. AND: Other variables like the Risk-Free Rate will end up impacting everything, including Cost of Equity and Cost of Debt, because both of them are tied to overall interest rates on "safe" government bonds. Tricky: Some changes only make an impact when a company actually has debt (changes to the tax rate), and you can't always predict how the value derived from a DCF will change in response to this. Changes to the DCF Analysis and the Impact on Cost of Equity, Cost of Debt, WACC, and Implied Value: Smaller Company: Cost of Debt, Equity, and WACC are all higher. Bigger Company: Cost of Debt, Equity, and WACC are all lower. * Assuming the same capital structure percentages - if the capital structure is NOT the same, this could go either way. Emerging Market: Cost of Debt, Equity, and WACC are all higher. No Debt to Some Debt: Cost of Equity and Cost of Debt are higher. WACC is lower at first, but eventually higher. Some Debt to No Debt: Cost of Equity and Cost of Debt are lower. It's impossible to say how WACC changes because it depends on where you are in the "U-shaped curve" - if you're above the debt % that minimizes WACC, WACC will decrease. Otherwise, if you're at that minimum or below it, WACC will increase. Higher Risk-Free Rate: Cost of Equity, Debt, and WACC are all higher; they're all lower with a lower Risk-Free Rate. Higher Equity Risk Premium and Higher Beta: Cost of Equity is higher, and so is WACC; Cost of Debt doesn't change in a predictable way in response to these. When these are lower, Cost of Equity and WACC are both lower. Higher Tax Rate: Cost of Equity, Debt, and WACC are all lower; they're higher when the tax rate is lower. ** Assumes the company has debt - if it does not, taxes don't make an impact because there is no tax benefit to interest paid on debt.
Valuation and Discounted Cash Flow Analysis (DCF)
 
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Here's a quick overview on Valuation. We also construct an entire discounted cash flow analysis on WalMart in conjunction with my book Financial Modeling and Valuation: A Practical Guide to Investment Banking and Private Equity http://www.amazon.com/Financial-Modeling-Valuation-Practical-Investment/dp/1118558766/ref=sr_1_8?ie=UTF8&qid=1422553204&sr=8-8&keywords=valuation
Views: 90690 Paul Pignataro
Equity Value vs. Enterprise Value and Valuation Multiples
 
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Learn how Equity Value and Enterprise Value change when a company issues debt, pays off debt, issues equity, and repurchases shares. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" The key point is that regardless of how a company is financed, its Enterprise Value - and Enterprise Value-based multiples - do NOT change. Equity Value, however, may change depending on its share count and any shares it issues or repurchases. So even when a company changes its debt or equity or cash levels, valuation multiples such as EV / EBITDA and EV / Revenue will not change immediately afterward... whereas a multiple such as P / E (Price Per Share / Earnings Per Share, or Equity Value / Net Income) will change if new equity has been issued. It's just like when you buy a house - house is worth $500K regardless of whether you pay with 100% cash or 50% cash and 50% debt, or anything else in between... but depending on how much cash and debt you use, your own EQUITY IN THAT HOUSE will be different. The $500K total value of the house is like the Enterprise Value for a company. And if you contribute $250K of your own cash and take on a $250K mortgage, the $250K you chip in is your "Equity Value" and the $250K mortgage is the "Debt." Over time, your own "Equity Value" in that house will increase and your own "Debt" will decrease as you repay the mortgage, but the $500K total value for the house stays the same as long as the house's intrinsic value remains the same. This example uses Coca-Cola's filings and financial statements - you can find them and try this yourself right here: http://www.coca-colacompany.com/investors/annual-other-reports http://www.coca-colacompany.com/investors/investors-info-quarterly-filings (NOTE: The numbers, of course, will be different if you look at this video at a later date, but the concept remains the same and has always been the same ever since Equity Value and Enterprise Value were invented.) MENTIONED RESOURCES http://youtube-breakingintowallstreet-com.s3.amazonaws.com/KO-Equity-Value-Enterprise-Value.xlsx
What's in an Equity Research Report?
 
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In this tutorial, you'll learn what goes into an equity research report, including how it differs from a stock pitch in terms of structure and argument, the main sections of the reports, and how you might write your own reports. http://www.mergersandinquisitions.com/equity-research-report/ Table of Contents: 1:43 Part 1: Stock Pitches vs. Equity Research Reports 6:00 Part 2: The 4 Main Differences in Research Reports 12:46 Part 3: Sample Reports and the Typical Sections 20:53 Recap and Summary Part 1: Stock Pitches vs. Equity Research Reports The main difference is that equity research reports are like "watered-down" stock pitches: you still recommend for or against investment in a public company, but your views are weaker, "Sell" recommendations are rare, and you spend a lot more time describing the company and its operations and financials. By contrast, in hedge fund stock pitches you take more extreme views and spend more time explaining how your views differ from those of the market as a whole. Part 2: The 4 Main Differences in Research Reports 1) There's More Emphasis on Recent Results and Announcements 2) Far-Outside-the-Mainstream Views Are Less Common 3) Research Reports Give "Target Prices" Rather Than Target Price Ranges 4) The Investment Thesis, Catalysts, and Risk Factors Are "Looser" Part 3: Sample Reports and the Typical Sections The main sections of a report are as follows: Page 1: Update, Rating, Price Target, and Recent Results The first page of an "Update" report states the bank's recommendation (Buy, Hold, or Sell, sometimes with slightly different terminology), and gives recent updates on the company. A specific "target price" must be based on specific multiples and specific assumptions in a DCF or DDM. So with Jazz, we explain that the $170.00 target is based on 20.7x and 15.3x EV/EBITDA multiples for the comps, and a discount rate of 8.07% and Terminal FCF growth rate of 0.3% in the DCF. Next: Operations and Financial Summary Next, you'll see a section with lots of graphs and charts detailing the company's financial performance, market share, and important metrics and ratios. For a pharmaceutical company like Jazz, you might see revenue by product, pricing and # of patients per product per year, and EBITDA margins. For a commercial bank like Shawbrook, you might see loan growth, interest rates, interest income and net income, and regulatory capital figures such as the Common Equity Tier 1 (CET 1) and Tangible Common Equity (TCE) ratios: This section of the report explains how the research analyst/associate forecast the company's performance and came up with the numbers used in the valuation. Valuation The valuation section is the one that's most similar in a research report and a stock pitch. In both fields, you explain how you arrived at the company's implied value, which usually involves pasting in a DCF or DDM analysis and comparable companies and transactions. The methodologies are the same, but the assumptions might differ substantially. In research, you're also more likely to point to specific multiples, such as the 75th percentile EV/EBITDA multiple, and explain why they are the most meaningful ones. Investment Thesis, Catalysts, and Risks This section is short, and it is more of an afterthought than anything else. We do give reasons for why these companies might be mispriced, but the reasoning isn't that detailed and it's not linked to specific share prices. Banks present Investment Risks mostly so they can say, "Well, we warned you there were risks and that our recommendation might be wrong." http://www.mergersandinquisitions.com/equity-research-report/
Investment Banking Interview Preparation
 
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This is an overview of what to expect in a first round investment banking interview.
Views: 178845 Paul Pignataro
Investment Banking 101: Operating Model
 
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In this episode of the financial modelling series Sergey, ex-Goldman Sachs investment banker, will describe how to build an operating model for a start-up company with the step-by-step financial modelling guide. 00:47 income statement assumptions total revenue cost of goods sold research & development sales & marketing general & administrative expenses other expenses 26:00 balance sheet assumptions operating assets operating liabilities capex & depreciation schedule other assumptions 37:35 income statement revenue gross profit operating expenses operating income ( EBIT) prfoit before taxes net income 49:10 balance sheet assets liabilities & shareholders equity 01:04:08 cash flow statement cash flow from operating activities Original Excel file with financial model can be found here: https://goo.gl/QScJgJ Our Investment Banking preparation course https://youtu.be/bBMmN8Cmq3g WANT TO GET INTO INVESTMENT BANKING? Join Sergey's course on Investment Banking Interview Prep https://edu.fless.pro/investment-banking-interview-prep-course SUBSCRIBE AND STAY WITH US! FLESS https://fless.pro Instagram https://www.instagram.com/flesspro Facebook https://www.facebook.com/flesspro VK https://vk.com/flesspro Telegram https://t.me/flesspro
Views: 7361 Fless
3 ways to value a company - MoneyWeek Investment Tutorials
 
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Valuing a company is more art than science. Tim Bennett explains why and introduces three ways potential investors can get started. Related links… • How to value a company using discounted cash flow (DCF) - https://www.youtube.com/watch?v=jfcRUzKZZE8 • How to value a company using net assets - https://www.youtube.com/watch?v=rV68zoBKTJE • What is a balance sheet? https://www.youtube.com/watch?v=DuKEcxVplnY MoneyWeek videos are designed to help you become a better investor, and to give you a better understanding of the markets. They’re aimed at both beginners and more experienced investors. In all our videos we explain things in an easy-to-understand way. Some videos are about important ideas and concepts. Others are about investment stories and themes in the news. The emphasis is on clarity and brevity. We don’t want to waste your time with a 20-minute video that could easily be so much shorter.
Views: 276510 MoneyWeek
Basics Of Corporate Restructuring - M&A Insights
 
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In today’s video we cover the basics of corporate restructuring and the options available to executives. The key questions to be covered are; - What are divestitures? - What is an equity carve-out? - What is a spinoff? - What is a bust up? - What is a tracking stock? - What are master limited partnerships (MLPs)? - How do these options impact shareholder value? - What are the tax implications of an equity carveout, MLP, spinoff, and etc? Companies often have to contract and downsize their operations. This need may arise because a division of the company is performing poorly or simply because it no longer fits into the firm’s plans. Corporate restructuring is an option which can help management unlock shareholder value and offload unnecessary risk. For those who are interested in buying the Mergers and Acquisitions, and Corporate Restructurings textbook by Patrick A. Gaughan, follow the Amazon link below; https://www.amazon.com/Mergers-Acquisitions-Corporate-Restructurings-Patrick/dp/0470561963 If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 19966 FinanceKid
Financial Modeling Quick Lesson: Building a Discounted Cash Flow (DCF) Model - Part 1
 
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Learn the building blocks of a simple one-page discounted cash flow (DCF) model consistent with the best practices you would find in investment banking. If you are preparing for investment banking interviews, know that the DCF is the source of a TON of investment banking interview questions. To download the backup Excel file, go to www.wallstreetprep.com/blog/financial-modeling-quick-lesson-building-a-discounted-cash-flow-dcf-model-part-1/ The DCF modeled here is a simplified version of a fully-integrated DCF model. For a deeper dive into DCF modeling in Excel, please visit www.wallstreetprep.com.
Views: 384423 Wall Street Prep
Walk me through a DCF? (NEW) | Interview Answer
 
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Subscribe Now For More Content - Back on the 10th of June 2019 ___ 🔥Don't forget to Subscribe, Like and Share this video🔥 Walk me through a DCF is a very common investment banking interview question, in fact, your almost guaranteed to get asked it during your interviews. In this video I will show you how to fully answer this question and more by providing insights into how a real DFC is performed by investment banking analyst. By using this answer you will impress your interviewer.
Views: 7037 High Finance Graduate
Investment Banking Analyst Interview (2019) Questions and Answers
 
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Subscribe Now For More Content - Back on the 10th of June 2019 -- In this video we will go over what you can expect during your investment banking interviews, we will cover specific questions as well as ideal answers to help you ace your interviews and land the job. Only 2% of applicants are successful in their investment banking recruitment and a large proportion of candidates fail there interviews over simple questions. In this video I will show you what questions you need to prepare for, most will be surprised by the level of knowledge you will need, hence why only 2% are successful every year. Investment Banking Interviews are broken into two parts Behavioural & technical questions. To be successful you will need to ace both sets of questions regardless of your background. Behavioural / Competency questions are designed to see how you cope under pressure and to see how well you know about the industry and the life of an investment banker. Theses questions are often overlooked but if you get one of these questions wrong then you might as well just walk out of the interview room. Technical questions are broken into the following 1) Basic Accounting 2) Finance 3) Financial Valuation 4) M&A 5) LBO 6) Brain teasers Behavioural questions: Walk me through your resume Why Investment Banking What are your weaknesses What are your strengths Why this firm
Views: 8275 High Finance Graduate
IPO Valuation Model
 
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In this tutorial, you’ll learn what an “IPO valuation” really means, how to model an initial public offering (IPO) transaction, and what an IPO model tells you about the company and its possible valuation multiples before and after going public. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 4:17 The Rationale and Assumptions Behind an IPO 7:47 Pricing vs. Trading Equity Value in an IPO 12:38 Primary vs. Secondary Shares and the Greenshoe or Overallotment Provision 16:10 Deal Size & Net Proceeds to Issuer 19:31 Implied Valuation Multiples 21:08 Alternate IPO Model Driven by Offering Price per Share and Shares Sold/Issued 24:05 Recap and Summary Lesson Outline: We get a lot of questions about "IPO valuation" or "IPO modeling," but the truth is that it’s really simple because you don't, in fact, "value" a company in an IPO. Instead, you simply value a company and then decide how its valuation might be different in an IPO (e.g., no private company discount). Step 1: Assumptions & Setup You almost always start an IPO model with an idea of how much in funding the company wants to raise, and the multiples it may be valued at (based on public comps). The multiples used vary by industry, but 1-year forward P / E multiples are very common (e.g., go to the next full fiscal year and assume a multiple for that projected full-year figure). Here, we’d pick forward multiples from similar, profitable social networking / mobile messaging companies (not covered in this tutorial in the interest of time). Amount of Capital to Raise: Very discretionary and it comes down to the company's plans, how many existing shareholders want to sell, whether it's PE or VC-backed, etc. This is often set to 20-40% of a company's value; common to sell ~1/4 or ~1/3 of the company in a public offering, though that also varies. Step 2: Trading vs. Pricing and the Pricing Discount You apply the assumed multiple to the company's relevant metric, so Forward Net Income in this case, which gets you the "Post-Money Equity Value @ Trading." This is what the company's market cap should be after it has raised the capital and is trading on the stock market. So we can then calculate the Post-Money Equity Value at Trading (the market rate) vs. Pricing (the discounted rate that institutional investors get). And then calculate the Implied Offering Price per Share based on this - take this value, subtract the funds raised, and divide by the company's current share count. Step 3: Determining the Primary vs. Secondary Shares and the "Greenshoe" (Overallotment) Provision "Primary Shares" are newly created shares that represent actual capital being raised in the deal - this capital then goes to the company in the form of cash. "Secondary Shares" represent existing investors selling their stakes to new investors (usually large institutions like Fidelity). No capital is raised here. Formulas: Always determine the Primary Shares first, based on the Post-Money Equity Value @ Pricing and/or the amount of capital raised… and then figure out the Secondary Shares in relation to that. Have to also figure out split between "Base Offering" and "Greenshoe" - "Greenshoe" is an option to issue even more shares if demand is strong enough. Used for cases where the company wants to keep the same offering price, but simply raise more capital if more investors are interested. Very commonly set to ~15% in offerings in developed markets. Step 4: Net Proceeds to Issuer Look at Total Offering Size first (Primary + Secondary + Overallotment) and then subtract out fees. Underwriting Discount: Banks used to, and sometimes still do, buy a portion of the company's stock as "insurance" in case the company can't sell it to anyone else… so this is supposed to compensate them for the risk of holding the stock temporarily, in case it can't find any buyers. Bigger deal = lower fee % in most cases. % Company Sold: Based on Primary Proceeds and Post-Money Equity Value @ Pricing - how much the company sold of itself just before it started trading publicly. Step 5: Valuation Multiples We move from Equity Value to Enterprise Value as we normally do… but we must factor in the cash raised in the IPO now! Equity Value implicitly reflects this cash, so it must be subtracted when calculating the new Enterprise Value. Would have to compare these multiples to those of the public comps to decide whether or not they look reasonable. RESOURCES: http://youtube-breakingintowallstreet-com.s3.amazonaws.com/107-09-IPO-Valuation-Model.xlsx http://youtube-breakingintowallstreet-com.s3.amazonaws.com/107-09-IPO-Valuation-Model.pdf
Top 20 Investment Banking Interview Questions 📖
 
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20 Questions you may be asked at an iInvestment bank Interview. http://www.financial-spread-betting.com/course/technical-analysis.html PLEASE LIKE AND SHARE THIS VIDEO SO WE CAN DO MORE! What is the best way to a job at an investment bank? How did you get hired at an investment bank? I know we have some subscribers who are looking to get a job in the trading world - whether at an investment bank or proprietary trading firm. I've done a bit of research for you guys.. Investment banking interview question examples: 1) Which is greater 17% of 34 or 34% of 17. 2) What is going on in the economy? 3) If a specific data is announced (say an increase in interest rates or there is an increase in Non-Farm Payrolls) which 5 trades would you make? 4) Do you think Apple is a good buy? 5) If I gave you a million dollar and asked you to generate some alpha within the next 6 to 12 months how would you go about it? 6) What can a firm accomplish in Chapter 11 that it can't accomplish out of court? 7) What could be the reason for 2 companies operating in the same industries operating at different EBITBA multiples? 8) Why would a creditor elector receive equity via a restructuring process as opposed to debt/ 9) Walk me around the world and tell me about the markets as you go. 10) 4 asset classes - gold, oil, USA 10-year treasury rates and S&P 500 - pick one and tell me where it has been and where do you see it going and why. 11) Tell us about a deal that we've done that interests you and why? 12) Explain quantitative easing to me. 13) Talk me about the shape of the Yield Curve. 14) How do you value a mining company - what multiples are most appropriate? 15) Where is the world headed 16) Describe a few instances where you have failed.. 17) Describe the major transactions that have happened in a specific industry (say retail) 18) Assume you're an investor and you come across a family-owned business for sale - how do you go about valuing that business. 19) Sell me this water bottle... 20) Tell me about something you read about the news that you think will have a positive or negative implication for the USA or equity markets. 21) Once you receive offers from a number of firms - what will be the most important factors for you as you think which one you will which accept? Related Videos Applying for a Trading Job! https://www.youtube.com/watch?v=xd0LqTZdzbo 6 Crazy Questions Asked at Prop Trading Job Interviews & Investment Banks 🤪 https://www.youtube.com/watch?v=sXWebDEhCvg Top 6 Trading Job Interview Questions 🙋 https://www.youtube.com/watch?v=DRPtOSJCIbc
Views: 7672 UKspreadbetting
Comparable Companies Analysis – CH 1 Investment Banking Valuation Rosenbaum
 
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In this video, I provide a comprehensive overview of the comparable companies analysis used in investment banking and the different steps needed to offer a defensible valuation range. The video is long but offers all the information you need to know for an entry level analyst and any student looking to prepare for a related interview. I am working off the second edition Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions textbook by Joshua Rosenbaum and Joshua Pearl. Chapter 1 covered topics like; - Finding the right universe of comparable companies using business and financial characteristics - Enterprise and equity value multiples - Treasury stock and if-converted methods for fully diluted shares - Net share settlement method (NSS) - Calendarization of financial data - Adjustments for non-recurring items - Benchmarking and valuation For those who are interested in buying the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl, follow the Amazon link below; https://www.amazon.ca/Investment-Banking-Valuation-Leveraged-Acquisitions/dp/1118656210 If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 10106 FinanceKid
Equity vs. debt | Stocks and bonds | Finance & Capital Markets | Khan Academy
 
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Debt vs. Equity. Market Capitalization, Asset Value, and Enterprise Value. Created by Sal Khan. Watch the next lesson: https://www.khanacademy.org/economics-finance-domain/core-finance/stock-and-bonds/venture-capital-and-capital-markets/v/chapter-7-bankruptcy-liquidation?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Missed the previous lesson? Watch here: https://www.khanacademy.org/economics-finance-domain/core-finance/stock-and-bonds/venture-capital-and-capital-markets/v/more-on-ipos?utm_source=YT&utm_medium=Desc&utm_campaign=financeandcapitalmarkets Finance and capital markets on Khan Academy: This is an old set of videos, but if you put up with Sal's messy handwriting (it has since improved) and spotty sound, there is a lot to be learned here. In particular, this tutorial walks through starting, financing and taking public a company (and even talks about what happens if it has trouble paying its debts). About Khan Academy: Khan Academy offers practice exercises, instructional videos, and a personalized learning dashboard that empower learners to study at their own pace in and outside of the classroom. We tackle math, science, computer programming, history, art history, economics, and more. Our math missions guide learners from kindergarten to calculus using state-of-the-art, adaptive technology that identifies strengths and learning gaps. We've also partnered with institutions like NASA, The Museum of Modern Art, The California Academy of Sciences, and MIT to offer specialized content. For free. For everyone. Forever. #YouCanLearnAnything Subscribe to Khan Academy’s Finance and Capital Markets channel: https://www.youtube.com/channel/UCQ1Rt02HirUvBK2D2-ZO_2g?sub_confirmation=1 Subscribe to Khan Academy: https://www.youtube.com/subscription_center?add_user=khanacademy
Views: 375244 Khan Academy
Investment Banking Training    Financial Modeling and Valuation
 
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Global Investment Banking Analyst/Associate Program Location: London or Remote/Web Video Conferencing The Global Investment Banking Program is an exciting opportunity to gain experience of real world transactions and working knowledge for Investment Banking, Private Equity and Hedge Fund careers. The program will give you solid understanding of transaction concepts and robust practical skills for extensive investment banking work experience. The 5-week program provides the following real world experience: • Analysis of London stock exchange and New York stock exchange listed companies • Preparation of buy and sell side transaction pitches, teasers, and writing confidential investment memo • Excel Financial modeling and valuation of public listed companies by using "Comparable comps" method • Excel Financial modeling and valuation of public listed companies by using " Discounted cash flow" method • Excel Financial modeling and determination of the premium paid by buyer of the business by using "Transaction comps" method • Excel Financial modeling and leveraged buyout of the company by a Private Equity sponsor • Preparation of M&A transaction-ready model with Accretion/Dilution analysis of the deal • Board presentation and closing of investment banking transactions Upon completion of the program you will be prepared to carry out responsibilities of a full-time Analyst/Associate in investment banks and private equity firms. The program statement on your CV and your work experience reference report will enable you to stand out from thousands of other candidates and ensure that you are a strong contender in one the most competitive industries in the world. How to apply: Please send your CV to [email protected] Please note that a placement fee applies
Views: 15399 Global Banking School
Equity Valuation of Bank
 
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Recorded with http://screencast-o-matic.com
Views: 181 Samrangi Ghosh
WST: 4.1 Investment Banking Training - Basic Valuation Methodologies
 
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Wall St. Training Self-Study Instructor, Hamilton Lin, CFA reviews the basic valuation methodologies utilized by investment bankers and professionals to value companies, ranging from trading comps to deal comps to DCF to break-up analysis and other metrics. For more information of the video courses previewed here, go to: http://www.wstselfstudy.com/modules.html Over 80 hours of online, interactive Self-Study Videos! ***YOUTUBE VISITORS ONLY*** 10% off any online course, use Discount code: youtube http://www.wstselfstudy.com Wall St. Training Self-Study provides online, video-based, self-study financial modeling training solutions to Wall Street. Our interactive course modules are Excel-based and specialize in advanced and complex financial modeling, valuation modeling, investment banking, mergers & acquisitions and leveraged buyout training topics. Enhance your skills and master the content required by Wall Street investment banks, M&A, research, asset management, credit, and private equity firms.
Views: 54532 wstss
Investment Banking Interview (2019) - Questions and Answers
 
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Subscribe Now For More Content - Back on the 10th of June 2019 --- In this video we will go over what you can expect during your investment banking interviews, we will cover specific questions as well as ideal answers to help you ace your interviews and land the job. Only 2% of applicants are successful in their investment banking recruitment and a large proportion of candidates fail there interviews over simple questions. In this video I will show you what questions you need to prepare for, most will be surprised by the level of knowledge you will need, hence why only 2% are successful every year. Investment Banking Interviews are broken into two parts Behavioural & technical questions. To be successful you will need to ace both sets of questions regardless of your background. Behavioural / Competency questions are designed to see how you cope under pressure and to see how well you know about the industry and the life of an investment banker. Theses questions are often overlooked but if you get one of these questions wrong then you might as well just walk out of the interview room. Technical questions are broken into the following 1) Basic Accounting 2) Finance 3) Financial Valuation 4) M&A 5) LBO 6) Brain teasers
Views: 11075 High Finance Graduate
What Is A Valuation Multiple?
 
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This lesson was prompted by a question that came in from a reader and student of our courses the other day: "When you divide Enterprise Value by Revenue (EV / Revenue), or Price Per Share by Earnings Per Share (P / E), what does that actually mean? By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" In other words, if Enterprise Value / Revenue is 5.8x, what does that number actually mean?" Answer often given in textbooks: How valuable a company is in relation to its sales, profits, and so on... based on those metrics, how does the market value that company? But the real answer: the multiple itself means nothing at all! By itself, a single valuation multiple such as 5.8x or 15.3x or 25.7x means... absolutely nothing. Valuation multiples are ONLY meaningful in relation to the multiples of OTHER, similar companies ("public comps" or "public company comparables"). It's like saying, in real life, "The asking price for that house is $500,000, or around $500 per square foot. What does that mean?" Answer: It depends... on the asking prices of similar houses in the region, also on the location, the type of house, # beds and bathrooms, the condition, the neighborhood, the public school system... Could mean that the house is very expensive, or that it's very cheap, or that it's priced about right. You already know this if you've studied valuation and have valued companies on your own... BUT there are 2 specific points that often go overlooked with valuation multiples: 1. The companies you're comparing should ideally have similar growth and margin profiles, or the comparison is less meaningful. It's NOT enough just to be in the same industry and be about the same size - that's a starting point, but financial profiles should ideally be similar as well. Be very careful - acquisitions often distort these numbers! Very different margins also distort the numbers (ex: 2 companies with similar revenue and 1 has a much higher margin - mathematically speaking, very likely to trade at a LOWER multiple just because the denominator will be bigger). 2. Even if the companies DO have similar financial profiles, a higher or lower multiple doesn't necessarily mean that one company is "overvalued" or "undervalued" because qualitative factors also play a role. For example, did the company just make an acquisition? Did it miss earnings? Did it get sued? Did a new competitor pop up? Think of valuation multiples as "clues" in a detective story... they can guide you in the right direction, but 1 clue is not enough evidence to solve the mystery of whether a company is valued appropriately. We demonstrate both of these points with Ralcorp (a food and beverages company) in the video, and show you how the set of public comps all have very different financial profiles that were impacted by acquisitions in some cases. Key Takeaways: 1. A valuation multiple means nothing on its own - only meaningful when compared to other companies', and ideally the median multiple from a set of other companies. 2. When picking a set of public comps, it's not just about industry and size... even if you do select companies with those criteria, must pay attention to growth and margins as well. If all the companies in your set have very different growth and margins from the company you're valuing, you may want to consider a different set. If there are acquisitions, it's better to pay more attention to forward multiples / growth rates / margins instead - for 1-2 years in the future. The analysis is MOST meaningful if, for example, all the companies have very similar growth and margins but the one you're looking at trades at much different multiples - then it's worth investigating further and seeing what explains that. 3. Just because a multiple is higher or lower than other companies' multiples doesn't mean that the company you're valuing is overvalued or undervalued... it's just one of many factors. Here, the presence of a hostile bidder threw off the numbers. Plus, rumors of the company spinning off divisions... Could be any number of things in real life as well - earnings announcements, changes in strategy, expansion plans, patents, lawsuits, management team changes, etc.
WST: 4.4 Investment Banking Training - Valuation Up and Down Capital Structure
 
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Wall St. Training Self-Study Instructor, Hamilton Lin, CFA hones in the importance of understanding how to move up and down the capital structure, from Total Enterprise Value to Equity Value to Price per Share. For more information of the video courses previewed here, go to: http://www.wstselfstudy.com/modules.html Over 80 hours of online, interactive Self-Study Videos! ***YOUTUBE VISITORS ONLY*** 10% off any online course, use Discount code: youtube http://www.wstselfstudy.com Wall St. Training Self-Study provides online, video-based, self-study financial modeling training solutions to Wall Street. Our interactive course modules are Excel-based and specialize in advanced and complex financial modeling, valuation modeling, investment banking, mergers & acquisitions and leveraged buyout training topics. Enhance your skills and master the content required by Wall Street investment banks, M&A, research, asset management, credit, and private equity firms.
Views: 7004 wstss
Precedent Transactions Analysis – CH 2 Investment Banking Valuation Rosenbaum
 
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In this video, I provide a comprehensive overview of the precedent transactions analysis used in investment banking and the different steps needed to offer a defensible valuation range. The video is long but offers all the information you need to know as an entry level analyst and for any student looking to prepare for a related interview. I am working off the second edition Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions textbook by Joshua Rosenbaum and Joshua Pearl. Chapter 2 covered topics like; - Strategic vs. Financial buyers - Deal dynamics and motivations - Purchase considerations; cash, stock-for-stock, cash/stock mix - Schedule TO, 14D-9, 13E-3, and proxy statements - Enterprise and equity value multiples - Treasury stock and if-converted methods for fully diluted shares - Synergies and necessary adjustments For those who are interested in buying the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl, follow the Amazon link below; https://www.amazon.ca/Investment-Banking-Valuation-Leveraged-Acquisitions/dp/1118656210 If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 2618 FinanceKid
Valuation DCF Case Study
 
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In class today we went through a DCF case study example. This was similar to a portion of a bulge bracket bank final round case one of our past students had provided for us. My fourth book coming out this month will be pages of similar case studies increasing in difficulty to best prepare a candidate for investment banking interviews. https://www.amazon.com/Technical-Interview-Investment-Banking-Website/dp/1119161398/ref=sr_1_4?ie=UTF8&qid=1486645420&sr=8-4&keywords=pignataro
Views: 12364 Paul Pignataro
How to Create the Football Field Chart in Investment Banking Valuations
 
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In this Football Field Chart lesson, you'll learn how to create the infamous chart in investment banking. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" You will also learn how you can use it to assess and compare different valuation methodologies. While it may take some time to *format* the chart, the actual creation of the chart itself isn't too complicated... IF you know the proper tricks to make the process easier. Table of Contents: 2:02 Setting Up the Graph 4:51 Creating and Formatting the Graph 7:52 Interpreting the Graph 12:03 Recap and Summary 1. Setting Up the Graph First, link in the name for each methodology along with the Min, 25th Percentile, Median, 75th Percentile, and Max. Trick: Need to flip this and display them in the reverse order because of how Excel charts and graphs work… so input numbers in the leftmost column and sort by that column to do this quickly. Then, calculate the distance between each point on the right-hand side. "Trick" here is that each bar in the chart will be the length between one point and the next point - NOT that bar's absolute value! 2. Creating and Formatting the Graph Create a Stacked Bar Chart in Excel, with this data range selected, and then start formatting… we're skipping much of this here in the interest of time, and because it's covered in the Excel course in the graph/chart lessons there. Typically, you hide everything below the "Min" point, and you may also hide the Min to 25th and 75th to Max ranges depending on the #s… definitely the case if there are outliers, as there are here. You could also add a legend, axis titles, better labels, text labels of the indicative range of multiples and the company's figures on the right-hand side, and so on - depends on time available and how annoying your bosses want to be. 3. Interpreting the Graph VERY strange results here - first off, Precedent Transactions typically give higher values than Public Comps… ...but it's the reverse here, possibly because the market has radically shifted in the past ~1 year as multiples have soared. P / E and EV / Revenue multiples seem to indicate that the company is appropriately valued if you go by the median to 75th percentile range of the set (which may be appropriate here, given JAZZ's higher growth and margins vs. the comps). …and EV / EBITDA multiples indicate that the company may be undervalued substantially, even if you look at only the median of each set. The M&A comps and multiples may not even be that meaningful because of the problem we cited above - but it would be interesting to look at *premiums paid* for each company in addition to the standard multiples, because premiums often tell a different and more useful story. The DCF gives a much higher value than other methodologies, but this is not unusual because our view differs the MOST strongly from consensus estimates far into the future - so if we were analyzing this as a potential investment, the DCF would arguably be the most meaningful methodology here. On the other hand, if we did NOT put much time/effort into the DCF, then it might be the least meaningful of our methodologies here. Also, the much lower tax rate is more of a factor in the DCF… got tax inversions? Jazz Pharma is incorporated in Ireland, so its ~18% effective tax rate might be a huge draw for potential acquirers.
CH 1 Questions - Comparable Companies Analysis, Investment Banking Valuation Rosenbaum
 
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Test your knowledge of comparable companies analysis! The following video covers the chapter 1 questions from the Joshua Rosenbaum Investment Banking book. The multiple choice questions offer a great challenge for any students preparing for their investment banking interviews. Chapter 1 covered topics like; - Finding the right universe of comparable companies using business and financial characteristics - Enterprise and equity value multiples - Treasury stock and if-converted methods for fully diluted shares - Net share settlement method (NSS) - Calendarization of financial data - Adjustments for non-recurring items - Benchmarking and valuation For those who are interested in buying the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl, follow the Amazon link below; https://www.amazon.ca/Investment-Banking-Valuation-Leveraged-Acquisitions/dp/1118656210 If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 2083 FinanceKid
CH 4 Questions - LBO Transactions, Investment Banking Valuation Rosenbaum
 
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Once you’ve watched the full CH4 video and learned about the LBO transaction and the private equity industry, test your knowledge with these 15 questions! I walk through the examples and tie what we learned in the chapter video to these questions. So what did we learn? - What are private equity firms and how do they invest? - How does leverage impact the equity returns of a sponsor? - What is a leveraged buyout (LBO)? - How does changing the financing mix change overall returns? - What is the internal rate of return (IRR)? - What are the characteristics of a strong LBO candidate? - What are the available sources of LBO financing? For those who are interested in buying the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl, follow the Amazon link below; https://www.amazon.ca/Investment-Banking-Valuation-Leveraged-Acquisitions/dp/1118656210 If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 1162 FinanceKid
WST: 4.3 Investment Banking Training - Valuation Multiples
 
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Wall St. Training Self-Study Instructor, Hamilton Lin, CFA illustrates the concept behind how to apply multiples in relative valuation. For more information of the video courses previewed here, go to: http://www.wstselfstudy.com/modules.html Over 80 hours of online, interactive Self-Study Videos! ***YOUTUBE VISITORS ONLY*** 10% off any online course, use Discount code: youtube http://www.wstselfstudy.com Wall St. Training Self-Study provides online, video-based, self-study financial modeling training solutions to Wall Street. Our interactive course modules are Excel-based and specialize in advanced and complex financial modeling, valuation modeling, investment banking, mergers & acquisitions and leveraged buyout training topics. Enhance your skills and master the content required by Wall Street investment banks, M&A, research, asset management, credit, and private equity firms.
Views: 16379 wstss
Sell-Side M&A – CH 6 Investment Banking Valuation Rosenbaum
 
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The sale of a company, division, business, or collection of assets is a major event for its owners, management, employees, and other stakeholders. It is an intense, time-consuming process with high stakes, usually spanning several months. The seller typically hires an investment bank and its team of trained professionals to ensure that key objectives are met and a favorable result is achieved. This video covers sell-side M&A from chapter 6 of the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions textbook by Joshua Rosenbaum and Joshua Pearl. Questions answered in the video include? - What is a broad auction? - What is a targeted auction? - What is a negotiated sale? - What is the sell-side M&A process from start to finish? - What is the difference between a strategic and financial buyer? - What is a Confidential Information Memorandum (CIM)? - What is a letter of intent (LOI)? - One step vs two-step merger For those who are interested in buying the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl, follow the Amazon link below; https://www.amazon.ca/Investment-Banking-Valuation-Leveraged-Acquisitions/dp/1118656210 If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 3288 FinanceKid
How to value a company using discounted cash flow (DCF) - MoneyWeek Investment Tutorials
 
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Every investor should have a basic grasp of the discounted cash flow (DCF) technique. Here, Tim Bennett introduces the concept, and explains how it can be applied to valuing a company.
Views: 518864 MoneyWeek
LBO Model Interview Questions: What to Expect
 
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In this tutorial, you'll learn about the most common LBO modeling-related questions and some tricks and rules of thumb you can use to approximate the IRR and solve for assumptions like the purchase price and EBITDA growth in leveraged buyouts. Table of Contents: 2:36 Question #1: LBO Model Walkthrough 5:34 Question #2: Ideal LBO Candidates 8:09 Question #3: How to Approximate IRR 11:46 Question #4: How to Solve for EBITDA or the Purchase Price 13:58 Question #5: How to Approximate the IRR in an IPO Exit 16:03 Recap, Summary, and Key Principles Lesson Outline: Will you get LBO-related questions in interviews? Yes, possibly, but full case studies are unlikely unless you're interviewing for PE roles or more advanced IB roles. Interviewers now ask trickier questions about the fundamentals, they ask progressions of questions on the same topic or scenario, and they're more likely to give you *simple* cases and numerical tests rather than complex ones. A typical progression for LBO models might be as follows: Question #1: LBO Model Walkthrough "In a leveraged buyout, a PE firm acquires a company using a combination of Debt and Equity, operates it for several years, and then sells it; the math works because leverage amplifies returns; the PE firm earns a higher return if the deal does well because it uses less of its own money upfront." In Step 1, you make assumptions for the Purchase Price, Debt and Equity, Interest Rate on Debt, and Revenue Growth and Margins. In Step 2, you create a Sources & Uses schedule to calculate the Investor Equity paid by the PE firm. In Step 3, you adjust the Balance Sheet for the effects of the deal, such as the new Debt, Equity, and Goodwill. In Step 4, you project the company's statements, or at least its cash flow, and determine how much Debt it repays each year. Finally, in Step 5, you make assumptions about the exit, usually using an EBITDA multiple, and calculate the MoM multiple and IRR. Question #2: Ideal LBO Candidates Price is the most important factor because almost any deal can work at the right price – but if the price is too high, the chances of failure increase substantially. Beyond that, stable and predictable cash flows are important, there shouldn't be a huge need for ongoing CapEx or other big investments, and there should be a realistic path to exit, with returns driven by EBITDA growth and Debt paydown instead of multiple expansion. Question #3: Approximating IRR "A PE firm acquires a $100 million EBITDA company for a 10x multiple using 60% Debt. The company's EBITDA grows to $150 million by Year 5, but the exit multiple drops to 9x. The company repays $250 million of Debt and generates no extra Cash. What's the IRR?" Initial Investor Equity = $100 million * 10 * 40% = $400 million Exit Enterprise Value = $150 million * 9 = $1,350 million Debt Remaining Upon Exit = $600 million – $250 million = $350 million Exit Equity Proceeds = $1,350 million – $350 million = $1 billion IRR: 2.5x multiple over 5 years; 2x = 15% and 3x = 25%, so it's ~20%. Question #4: Back-Solving for Assumptions "You buy a $100 EBITDA business for a 10x multiple, and you believe that you can sell it again in 5 years for 10x EBITDA. You use 5x Debt / EBITDA to fund the deal, and the company repays 50% of that Debt over 5 years, generating no extra Cash. How much EBITDA growth do you need to realize a 20% IRR?" Initial Investor Equity = $100 * 10 * 50% = $500 20% IRR Over 5 Years = ~2.5x multiple (2x = ~15% and 3x = ~25%) Exit Equity Proceeds = $500 * 2.5 = $1,250 Remaining Debt = $250, so Exit Enterprise Value = $1,500 Required EBITDA = $150, since $1,500 / 10 = $150 Question #5: Approximating IRR in an IPO Exit "A PE firm acquires a $200 EBITDA company for an 8x multiple using 50% Debt. The company's EBITDA increases to $240 in 3 years, and it repays ALL the Debt. The PE firm takes it public and sells off its stake evenly over 3 years at a 10x multiple. What's the IRR?" Initial Investor Equity = $200 * 8 * 50% = $800 Exit Enterprise Value = Exit Equity Proceeds = $240 * 10 = $2,400 "Average Year" to Exit = 1/3 * 3 + 1/3 * 4 + 1/3 * 5 = 4 years IRR: 3x over 3 years = ~45%, and 3x over 5 years = ~25% Approximate IRR: ~35% (This one's a bit off – see Excel.) RESOURCES: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-13-LBO-Model-Interview-Questions-Slides.pdf
CH 3 Questions - Discounted Cash Flow (DCF) Model, Investment Banking Valuation Rosenbaum
 
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Once you’ve watched the full CH3 video and learned how to build a DCF model, test your knowledge with these 15 questions! I walk through the examples and tie what we learned in the chapter video to these questions. So what did we learn? - How do you project revenues for a DCF model? - How many years do you project cashflows for? - What is the exit multiple method? - What is the perpetuity growth method? - How do you project EBITDA for a DCF model? - How do you project EBIT for a DCF model? - How do you project the NWC for a DCF model? - What is the mid-year convention? - How do you calculate unlevered free cash flow? For those who are interested in buying the Investment Banking: Valuation, Leveraged Buyouts, and Mergers and Acquisitions by Joshua Rosenbaum and Joshua Pearl, follow the Amazon link below; https://www.amazon.ca/Investment-Banking-Valuation-Leveraged-Acquisitions/dp/1118656210 If you have any other questions, please comment below. If you enjoyed the video and found it helpful, please like and subscribe to FinanceKid for more videos soon! For those who may be interested in finance and investing, I suggest you check out my Seeking Alpha profile where I write about the market and different investment opportunities. I conduct a full analysis on companies and countries while also commenting on relevant news stories. http://seekingalpha.com/author/robert-bezede/articles#regular_articles
Views: 1845 FinanceKid
How to value a company using multiples - MoneyWeek Investment Tutorials
 
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For investors wanting to do a quick and dirty check on whether a firm is cheap or expensive, multiples can be helpful. As part of his short series on valuing companies, Tim Bennett explains why and how to go about using them.
Views: 148696 MoneyWeek
How to Calculate EBITDA - Complete Investment Banking Tutorial & Walkthrough
 
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A walk-through on how to calculate EBITDA (Earnings Before Interest, Taxes, Depreciation & Amortization) for Steel Dynamics. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" EBITDA is important NOT because it is a good "proxy for cash flow" - as is commonly claimed by financiers and some academic sources - but rather because it lets you more easily compare different companies' valuations, especially companies with different capital structures, tax rates, and depreciation policies. To calculate it, you start with Operating Income (EBIT) on the Income Statement, and then add back Depreciation & Amortization (D&A) on the Cash Flow Statement, and then any other one-time or non-recurring charges you find on the financial statements or in the Notes to the Financial Statements. To qualify as an add-back, an item MUST: 1. Actually be non-recurring. A Restructuring Charge that has recurred every year over the past 10 years is NOT "non-recurring" even if the company claims it's just temporary. 2. Impact Operating Income. You would never add back something like Deferred Income Taxes because they're "below the line" and only impact the company's Income Taxes, not its Operating Income. Sometimes, items could go either way; for example, some banks and groups add back Stock-Based Compensation while others do not. We keep things as simple as possible and ONLY add back charges that are truly non-recurring and ones that actually impact Operating Income in this example. You'll learn how to tell whether or not an item meets those criteria above, even when it's a tricky case such as deciding if Gains / (Losses) truly affect the Operating Income line. WANT MORE FREE FINANCIAL MODELLING TUTORIALS? Receive a Free 3-Part Tutorial on How to Build Your First Merger Model based on the $16B United / Goodrich deal. Visit: www.breakingintowallstreet.com/biws
#ImarticusLive - Investment Banking and Valuation Techniques
 
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Investment Banking and Valuation Techniques is a webinar held on October 24, 2016. Visit: http://www.imarticus.org
Views: 2282 Imarticus Learning
Enterprise Value: Why You Add and Subtract Items
 
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In this Enterprise Value lesson we take a look at the rules of thumb to figure out what should be added or subtracted when you calculate it. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" This also covers a short case study based on Vivendi (a leading media/telecom conglomerate based in France), Everyone knows the definition of Enterprise Value: Take Equity Value, add Debt and Preferred Stock (and others), and subtract Cash... But WHY do you do any of that? Enterprise Value represents the value of the company's CORE BUSINESS OPERATIONS to ALL THE INVESTORS in the company - equity, debt, preferred stock, etc. So focus on OPERATIONAL ITEMS and ALL INVESTORS when thinking about what to include... and what to exclude! Table of Contents: 1:19 What Enterprise Value Means 2:10 The 3 Key Rules of Thumb 5:15 Walk-Through of Vivendi's Assets and What to Subtract 11:08 How to Determine the Proper Treatment for Certain Assets 12:33 Excel Calculations for Assets Subtracted 13:30 Walk-Through of Vivendi's Liabilities & Equity and What to Add 15:14 How to Determine the Proper Treatment for Certain Liabilities 17:04 Excel Calculations for Liabilities Added 18:57 The Equity Section and Noncontrolling Interests 19:45 Recap and Summary The Three Rules of Thumb: 1. Is this item a *long-term funding source* for the company? In other words, will the funds we raise from this item help fund our business for years to come? If so, you should ADD this item when calculating Enterprise Value! Examples: Debt, Preferred Stock, Noncontrolling Interests (Minority Interests), Capital Leases, Unfunded Pension Obligations, Restructuring/Environmental Liabilities... 2. Will this item cost an acquirer of the company something extra when they go to buy it? And is it NOT something that will be repaid out of the company's normal operating cash flows (e.g., Accounts Payable)? If so, ADD it when calculating Enterprise Value! Examples: Debt, Preferred Stock. 3. Is this item NOT an operating asset? In other words, could the company continue to operate even WITHOUT this particular asset and be fine? If so, SUBTRACT it when calculating Enterprise Value! (These items often "save acquirers money" when buying the company.) Examples: Cash, Liquid Investments, Net Operating Losses, Assets from Discontinued Operations or Assets Held for Sale... How Does Each Item In Our Analysis Satisfy This Criteria? ITEMS THAT YOU SUBTRACT: Cash - Non-operating asset, the company doesn't "need" it to run its business beyond a certain low, minimum level. Liquid Investments - Also non-operating, the company has no need to invest in the stock market if it sells normal products/services. Equity Investments - Non-operating, not recorded in this company's revenue/expenses, doesn't "need" it to run the business. Other Non-Core Assets - Typically items that will be sold off or discontinued soon, so they're the very definition of "non-operating." NOLs - Also non-operating since long-term tax savings from these are not required to run the business. ITEMS THAT YOU ADD: Debt - Long-term funding source, and an acquirer has to repay it. Preferred Stock - Long-term funding source, and an acquirer has to repay it. Noncontrolling Interests - Long-term funding source, but this one's mostly for *comparability*... the company has recorded 100% of revenue and expenses from this company, so we want to capture 100% of its value as well (see our dedicated lesson on this one). Unfunded Pension Obligations - They're a long-term funding source! "Work for us now, we'll pay you a bit less, but we'll take care of you when you retire! Really!" To the company, very much like super-long-term debt.... but owed to employees, not outside investors. Plus, an acquirer has to pay for these somehow... Capital Leases - Also a long-term funding source, sort of like debt used to fund PP&E... these leases are used to fund operations and must be repaid. Restructuring & Legal Liabilities - Increases the cost to an acquirer, and they are also "long-term funding" of a sort - "Instead of paying for these expenses right now, we'll take care of them far into the future and reflect that liability." The Bottom-Line The Enterprise Value calculation is always somewhat subjective, and you'll see it done different ways. Everyone agrees on certain items (Cash, Debt, Preferred Stock), but the treatment of others varies by group, firm, industry, etc. As long as you can justify and explain how you calculated it, you'll be fine - even if someone else wants to change it later. To do that, keep in mind the 3 key rules of thumb above. Further Resources http://youtube-breakingintowallstreet-com.s3.amazonaws.com/106-07-VIV-Equity-Value-Enterprise-Value.xlsx http://youtube-breakingintowallstreet-com.s3.amazonaws.com/106-07-VIV-Annual-Financial-Statements-Notes.pdf
What is Investment Banking? What do Investment Bankers Do?
 
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Download my new book for free at http://HarounVentures.com ★★★★★ Enroll in this course for just $9.99 (30 day 100% money back guarantee): https://www.udemy.com/the-complete-financial-analyst-training-and-investing-course/?couponCode=YT72218 Course Description: ★★★★★ #1 Best Selling Investing Course on Udemy! Welcome to The COMPLETE Financial Analyst Training and Investing Course by the author of the best selling business course on Udemy, an award winning professor, Columbia MBA graduate, former Goldman, hedge fund founder, venture capitalist, TEDx Talk speaker, author & entrepreneur featured in Forbes, Business Insider, Wired and Venture Beat. I guarantee that this is THE most thorough financial analyst course available ANYWHERE on the market - or your money back. This is the most thorough and longest course I have ever made and anyone can take it and see remarkable improvements in how competitive they are in the finance industry as a financial analyst or as an investor. This course is taught by Chris Haroun who also went through the Goldman Sachs financial analyst training program as well as the new hire training programs of other top finance companies. Chris has also started his own hedge fund and venture capital firms and is an award winning MBA school professor. He teaches based on real life practical experience. Do you have what it takes to complete this 22+ hour comprehensive finance training program? I'll see you on the other side. What Will You Learn in this Finance Bootcamp Course? How to pick stocks. Become an expert in Excel for financial analysts. How an IPO works. How to manage a portfolio. How to build financial models. How to get hired and promoted as a financial analyst. How risk management works. How to use technical analysis. How to value companies. Use and create Excel based templates developed by Chris to help you create financial statements from scratch (meaning income statements, balance sheets, cash flow statements and more). Use and create Excel based templates developed by Chris to help you value companies using several different valuation methodologies, including P/E, P/R and Discounted Cash Flow (DCF). Use and create Excel based templates developed by Chris to help you manage a portfolio. How Monetary Policy works. How Fiscal Policy works. How interest rates are changed and why this is crucial to understand for successful financial analysts. How to pitch long and short ideas to portfolio managers. How to find great venture capital investment ideas. How to come up with mutual fund investment ideas (longs - meaning buys) using an easy to understand top down and bottoms up research process. How to come up with hedge fund investment ideas (longs and shorts) using an easy to understand top down and bottoms up research process. Identify crucial catalysts (timed events) in order to know when the optimal time is to buy or short a stock. Understand how investment banks (the 'Sell Side') can help you be more successful in a hedge fund or mutual fund career. Analyze and understand an income statement (even if you have no experience with income statements). Analyze and understand a balance sheet (even if you have no experience with balance sheets). Analyze and understand a cash flow statement (even if you have no experience with cash flow statements). Understand and use modeling best practices so you can create financial models. Know where to get data in order to build a financial model (in depth understanding of identifying and using/navigating the best free websites and sources to build your financial model)! Create a financial model (projecting the future) for an income statement. Create a financial model (projecting the future) for a balance sheet. Create a financial model (projecting the future) for a cash flow statement. Understand valuation best practices so you can create target prices based on your financial models. How to use Discounted Cash Flow (DCF) and how to create the Weighted Average Cost of Capital and Terminal values in order to pick target prices. How to use P/E in order to pick target prices. How to use P/R in order to pick target prices. Other valuation methodologies, including EV/Sales, EV/EBITDA, P/B, EV/FCF, etc. Come up with a target price based on an average of several different valuation methodologies. Learn about 14 different Financial Analyst jobs and how they overlap and work together (including Investment Banking, Venture Capital, Private Equity, Private Wealth Management etc.). Enroll in this course for just $9.99 (30 day 100% money back guarantee): https://www.udemy.com/the-complete-financial-analyst-training-and-investing-course/?couponCode=YT72218
Oil & Gas Stock Pitch: How to Research and Present It
 
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In this tutorial, you'll learn how to research, structure, and present an oil & gas stock pitch. More at http://www.mergersandinquisitions.com/oil-gas-stock-pitch/ You'll also learn how it's different from investment recommendations and stock pitches in other industries. We'll use Ultra Petroleum [UPL] as the example company, and present a SHORT recommendation based on a detailed analysis of their filings, investor presentations, and earnings call transcripts, along with a complex Net Asset Value (NAV) Model, based on individual wells drilled in different regions. Table of Contents: 1:19 The Structure of an Oil & Gas Stock Pitch 3:15 Investment Thesis 6:19 Catalysts 10:42 Valuation 13:38 Risk Factors 15:51 Why This Recommendation Was Wrong 19:25 Recap and Summary Investment Thesis Why is the company mis-priced? How does the market view it, and why is everyone else wrong? Here, we cite 3 reasons: 1. The company has overstated its average EUR per well in some regions, which means its reserves may be overstated or otherwise inaccurate. 2. Cutting capital expenditures (D&C Costs) and operating expenses (LOE) over time makes less of an impact on the company's implied value than they claim it does - being a low-cost producer is nice, but even substantial reductions over time don't boost the value by all that much. 3. Drilling in Pennsylvania may be stopped or reduced due to the company's JV partners, and the market hasn't yet factored in the chances of that happening and the impact on the company's implied value. Catalysts A few examples of potential catalysts: Oil & Gas-Specific: Reserve Reports / Drill Results, Well Drilling Schedules / Expanded or Reduced Drilling, Produce / No Produce Decisions, New Technology Deployment to reduce D&C Costs, Improved Well Spacing, Pipeline Developments, Hedging Contract Changes More Generic: Geographic Expansion, Acquisitions or Divestitures, Earnings Announcements, Competitors' Activities, Financing Activities For UPL, we use these 3 catalysts: 1. The close of the $650 million Uinta Basin acquisition. 2. The release of new reserve reports from the company's existing regions. 3. The possible halt to drilling in the Marcellus shale of Pennsylvania. For each one, we show the implied per share impact on the company based on the NAV model. Valuation We use the NAV model here, lay out our assumptions in the beginning, and then mostly focus on the OUTPUT of the model to avoid pasting in sheets and sheets of Excel. With the NAV Model, you split the company into existing production (PDP and PDNP) and new production (PUD, PROB, and POSS), make "high-level" estimates for the existing production, and assume a decline rate over time. For the others, assume that a certain # of new wells are drilled each year, assume that they start producing at a certain level and then decline to 0 over time, and then project the revenue, expenses, CapEx, and cash flow for each region and reserve type... Finally, you sum up everything at the end. The main point is to show that the assumption we're MOST uncertain of - EUR per well - makes a huge difference on the valuation... ...While other assumptions, such as the D&C Costs and LOE per well, make a smaller difference and so it doesn't matter much even if the company can reduce those costs. Risk Factors You can "reverse" the catalysts and ask, "What happens if this catalyst does NOT happen, or what if the results are different than expected?" Our top risk factors are: 1. The $650 million Uinta Basin acquisition fails to close. 2. Even if the acquisition does close, initial drilling reports might be positive and indicate higher-than-expected reserve levels. 3. Full drilling continues in the Marcellus shale as natural gas prices recover. 4. The company's improved well spacing pilots prove successful, and it is able to increase its effective EUR per well. So the first 3 are "reversals" of the catalysts, and we therefore also assess the implied per share impact from them. The last risk factor is more of an "X Factor" type of item that might cause the company's reserves to jump up dramatically if executed well. Why This Recommendation Was Wrong First off, gas prices spiked up to very high levels ($7.00 - $8.00) due to an unusually cold winter. That killed the "Short" recommendation since all oil & gas companies become more valuable when commodity prices spike up. Next, the company beat revenue and EPS consensus estimates twice in the past 6-7 months after this pitch; equity research analysts also upgraded their ratings on the stock. Finally, the stock had already fallen substantially in the past 2-3 years before this... so our timing wasn't great. How to Avoid Disaster: We recommended setting a buy-stop order at $23.00 - $24.00 / share to limit our losses. That would have limited our losses to ~25%.
Introduction to Investment Banking
 
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Introduction to Investment Banking is a compilation of videos that are part of our Complete Investment Banking Course on Udemy: https://www.udemy.com/the-complete-investment-banking-course-2016/?couponCode=YOUTUBE The #1 Course to Land a Job in Investment Banking. IPOs, Bonds, M&A, Trading, LBOs, Valuation: Everything is included!
Views: 206195 365 Careers
WST: 4.7 Investment Banking Training - Valuation Control Premiums Paid
 
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Wall St. Training Self-Study Instructor, Hamilton Lin, CFA explores the logic underpinning how to value control premiums based on premiums paid to stock prices of publicly trade companies. For more information of the video courses previewed here, go to: http://www.wstselfstudy.com/modules.html Over 80 hours of online, interactive Self-Study Videos! ***YOUTUBE VISITORS ONLY*** 10% off any online course, use Discount code: youtube http://www.wstselfstudy.com Wall St. Training Self-Study provides online, video-based, self-study financial modeling training solutions to Wall Street. Our interactive course modules are Excel-based and specialize in advanced and complex financial modeling, valuation modeling, investment banking, mergers & acquisitions and leveraged buyout training topics. Enhance your skills and master the content required by Wall Street investment banks, M&A, research, asset management, credit, and private equity firms.
Views: 6464 wstss
Comparable Company Analysis
 
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A basic tutorial on how the logic of how a Comps Analysis works. Great for anyone interviewing for investment banking. Find model on ValuationUniversity.com
Views: 28121 Valuation University
Simple LBO Model - Case Study and Tutorial
 
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In this LBO Model tutorial, you'll learn how to build a very simple LBO model "on paper" that you can use to answer quick questions in PE (and other) interviews. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" This matters because in many cases, they'll ask you to calculate numbers such as IRR and multiple of invested capital very quickly and will not actually ask you to build a more complex model until later in the process. You should always START this exercise by looking at the actual question or set of questions they are asking you: "Calculate the purchase price required for ABC Capital to obtain a 3.0x multiple of invested capital (MOIC) if it plans to sell OpCo after five years at an EV / EBITDA multiple of 6.0x." So they're giving you the exit multiple and the return on investment that the PE firm is targeting, and you have to figure out the initial purchase price by "working backwards." Here's how we interpret each line in this case study and use it in the model: "OpCo currently has EBITDA of $250mm, and ABC believes that the new management team could keep EBITDA flat for the next 5 years." This tells you to make the initial EBITDA $250mm and keep it at that level for 5 years - skip revenue, COGS, OpEx, and everything else because none of that matters if this is all they give you. "ABC Capital has obtained debt financing of $750mm at 10% interest, and OpCo expects working capital to be a source of funds at $6mm per year." The initial debt balance is $750mm and there's a 10% interest rate, so the interest expense will be $75mm per year. In the "Cash Flow Statement Adjustments", since Working Capital is a SOURCE of funds it will add $6mm to cash flow each year. "OpCo requires capital expenditures of $35mm per year, and it has a tax rate of 40%. Assume no transaction fees, zero minimum cash required, and that PP&E on the balance sheet remains constant for the next 5 years." Also in the CFS section, CapEx = $35mm per year, and Depreciation also equals $35mm per year since the PP&E balance does not change at all. So you can also fill in the Depreciation figure on the Income Statement. No transaction fees and no minimum cash requirement simplify the purchase price and debt repayment - although we don't even have debt repayment here. "Assume that excess cash is NOT used to repay debt, and instead simply accumulates on the Balance Sheet." This makes the final numbers easier to calculate, since interest expense will never change and you can simply add up cash generated to get to the final cash number at the end. PROCESS: 1. Start with the Income Statement - EBITDA is $250mm per year. Subtract Depreciation of $35mm per year, and interest of $75mm per year. So EBIT = $140mm. Taxes = $140mm * 40%, so Net Income = $140mm - $56mm = $84mm. 2. On the simplified CFS, Net Income = $84mm, Depreciation = $35mm, Change in Working Capital = $6mm, CapEx = ($35mm), so Cash Generated per year = $90mm. 3. EBITDA Exit Multiple = 6.0x, and final year EBITDA = $250mm, so Exit EV = $1.5B. Subtract the outstanding debt of $750mm and add the cash generated in this period of $450mm, so Equity Proceeds = $1.2B. 4. Targeted MOIC = 3.0x so the PE firm would have to invest $400mm in the beginning. $400mm equity + $750mm debt = $1.150B, so the purchase multiple is $1,150 / $250 = 4.6x. Further Resources http://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-04-Simple-LBO-Model.pdf http://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-04-Simple-LBO-Model.xlsx
WST: 4.5 Investment Banking Training - Valuation Proxy for PE Ratios
 
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Wall St. Training Self-Study Instructor, Hamilton Lin, CFA digs into the proxy for PE (price to earnings) ratio, particularly when the target company being analyzed is private or otherwise lacks earnings per share or stock price. For more information of the video courses previewed here, go to: http://www.wstselfstudy.com/modules.html Over 80 hours of online, interactive Self-Study Videos! ***YOUTUBE VISITORS ONLY*** 10% off any online course, use Discount code: youtube http://www.wstselfstudy.com Wall St. Training Self-Study provides online, video-based, self-study financial modeling training solutions to Wall Street. Our interactive course modules are Excel-based and specialize in advanced and complex financial modeling, valuation modeling, investment banking, mergers & acquisitions and leveraged buyout training topics. Enhance your skills and master the content required by Wall Street investment banks, M&A, research, asset management, credit, and private equity firms.
Views: 9699 wstss
IRR vs. Cash on Cash Multiples in Leveraged Buyouts and Investments
 
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In this IRR vs Cash tutorial, you’ll learn the key distinctions between the internal rate of return (IRR). By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" You will also learn further distinctions on the cash-on-cash multiple or money-on multiple when evaluating deals and investments – and you’ll understand why venture capital (VC) firms target one set of numbers, whereas private equity (PE) firms target a different set of numbers. http://youtube-breakingintowallstreet-com.s3.amazonaws.com/109-05-IRR-vs-Cash-on-Cash-Multiples.xlsx Table of Contents: 1:35 Why Do IRR and Cash-on-Cash Multiples Both Matter? 3:05 What Do Private Equity vs. Venture Capital vs. Other Firms Care About? 8:30 How to Use These Metrics in Real Life 11:08 Key Takeaways Lesson Outline: 1. Why Does This Matter? Because there are DIFFERENT ways to judge the success of a deal - 2 of the main ones for leveraged buyouts (LBOs), growth equity investments, and venture capital investments are the internal rate of return (IRR) and the cash-on-cash (CoC) or money-on-money (MoM) multiple. Many investment firms will care a lot about one of these, but not the other, and will try to find investments that yield a high IRR or a high multiple… but not both. The Difference: IRR factors in the time value of money - it's the effective, compounded interest rate on an investment. Whereas the multiple is simpler and ignores timing (e.g., $1000 / $100 = 10x multiple). 2. What Do Different Firms Care About? Most venture capital (VC) firms and early-stage investors want to earn a multiple of their money back - they don't care that much about IRR, because they're going to be invested for a VERY LONG time and it's not exactly liquid… and they don't care what the stock market does. VC firms must be able to cover their losses with “the winners”! If they get 2x their capital back in 1 year (100% IRR) and then lose everything on another investment in 5 years’ time (0% IRR), the first result is completely irrelevant because they've only earned back 1x their capital. Perfect Example: Harmonix, maker of Guitar Hero - got VC investment in the mid-1990's, generated $0 in revenue for 5+ years, and then in 2005 released the hit video game Guitar Hero. Sold for $175 million to Viacom in 2006! Massive multiple, but likely a pathetic IRR since it took 10+ years to get there. Later-stage investors and private equity firms care more about IRR because the multiples will never be that high in late-stage deals, and because they are benchmarked against the public markets (e.g., the S&P 500) more. If the firm's IRR can't beat the stock market, why should you invest? Most PE firms target at least a 20-25% IRR depending on the economy, deal environment, valuations, etc… less when things are bad, more in frothy times. This makes it common to do "quick flip" deals where the company is bought and then sold at a MUCH higher multiple right after - simply to get a high IRR. Real-Life Example: Thoma Bravo (mid-market tech PE firm) bought Digital Insight from Intuit for $1.025 billion, and then sold it 4 months later for $1.65 billion to NCR. VERY high IRR - 316%! But only a ~1.6x money multiple, assuming no debt / no debt repayment. http://dealbook.nytimes.com/2013/12/02/sale-to-ncr-is-a-quick-profitable-flip-for-a-private-equity-firm/ 3. How Do You Use These Metrics In Real Life? How to calculate them: see the Atlassian or J.Crew models. IRR is straightforward and uses built-in Excel functions, but for the CoC or MoM multiple, you need to sum up all positive cash flows in the period and divide by the sum of all negative cash flows in that period, and flip the sign. In the case of Atlassian, the deal is great for Accel because they earn a 15x multiple, even though the IRR is "only" 35%... they do not care AT ALL because they are targeting the multiple, not the IRR. For T. Rowe Price, the multiple of 1.9x isn't great, but they do at least get a 14% IRR which is probably what they care about more since they are late-stage investors. For the J. Crew deal, both the IRR and the multiple are very low and below what PE firms typically target, so this deal would be problematic to pursue, at least with these assumptions. 4. Key Takeaways IRR and Cash-on-Cash or Money-on-Money multiples are related, but often move in opposite directions when the time period changes. Different firms target different rates and metrics (VC/early stage - multiples, ideally over 10x or 3-5x later on; PE/late stage - IRR, ideally 20%+). Calculation: IRR is simple, use the built-in IRR or XIRR in Excel; for the multiple, sum the positive returns/cash flows, divide by the negative returns/cash flows and flip the sign. Judging deals: Focus on multiples for earlier stage deals (and if you're pitching VCs to fund your company), and focus on IRR for later stage / growth equity / PE deals.
REIT Valuation: Crash Course
 
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In this tutorial, you’ll learn how REITs operate, how to create simple 3-statement projection models for them, how to extend the projections into a DCF analysis, and how to complete a Net Asset Value (NAV) model and use Public Comps to value a REIT. https://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" Table of Contents: 2:14 Part #1: Basic Characteristics of REITs and U.S. GAAP vs. IFRS 6:17 Part #2: Simple Projection Model for a REIT 12:00 Part #3: Extension of the Projection Model into a DCF for a REIT 16:03 Part #4: Net Asset Value (NAV) for REITs and Public Comps 19:40 Recap and Summary Resources: https://youtube-breakingintowallstreet-com.s3.amazonaws.com/REIT-Valuation-Slides.pdf https://youtube-breakingintowallstreet-com.s3.amazonaws.com/REIT-Valuation-Example.xlsx Lesson Outline: To value REITs simply and effectively, you must understand how they operate, their special requirements, and the differences between U.S. GAAP-based and IFRS-based REITs. REITs buy, sell, develop, and operate properties or other real estate assets. They must distribute a high percentage of Net Income in the form of Dividends (90% in the U.S.), and high percentages of their revenue and assets must come from real estate. In exchange, they pay no corporate income taxes (or greatly reduced corporate taxes). REITs are always maintaining, acquiring, developing, renovating, and selling properties, and since they distribute so much Cash, they constantly need to raise Debt and Equity to operate. The Gains and Losses on property sales make Net Income fluctuate, so you look at alternative metrics, such as Funds from Operations (FFO) or EPRA Earnings, when analyzing REITs. Funds from Operations (FFO) = Net Income + RE Depreciation & Amortization + Losses / (Gains) + Impairments. Under U.S. GAAP, REITs depreciate properties and record a huge Depreciation expense on the IS; under IFRS, they revalue properties constantly and record huge Fair Value Gains and Losses instead. Also as a result of that, Book Value is important and meaningful for IFRS-based REITs but must be adjusted significantly for U.S.-based REITs. To project a REIT’s statements, you start by projecting its “same-store” (existing) properties by assuming rental growth and margins. Then, assume acquisition, development/redevelopment spending, a yield on spending, and margins there, and assume something for dispositions and the lost revenue and operating income. Add up all the property-level revenue and expenses, and then project corporate items such as Depreciation, Maintenance CapEx, and SG&A with traditional percentage approaches. Make Dividends a % of FFO, AFFO, or EPRA Earnings, and assume Debt and Equity issued based on the REIT’s Cash before financing vs. its minimum Cash balance. To value a REIT with a DCF, extend these projections, factor in all CapEx and Asset Sales, as well as Stock Issued, and project revenue, margins, D&A, CapEx, and Asset Sales through a 10-year period. Calculate and discount Terminal Value the normal way, discount and sum up the Free Cash Flows, back into the Implied Equity Value and divide by the share count (current + future shares to be issued) to get the Implied Share Price. The DDM is similar, but you use Cost of Equity instead of WACC, Equity Value-based multiples for the Terminal Value, and you discount and sum up Dividends rather than Unlevered FCF. To calculate NAV for U.S.-based REITs, project the 12-month forward Net Operating Income from properties, divide it by an appropriate Cap Rate or Yield (based on similar transactions or companies in the market), and then take the market value of the other assets and add them up. Then, adjust the Liabilities, and subtract them from the market value of Assets to determine Net Asset Value; divide by the share count to get NAV per Share and compare it to the Current Share Price. Public Comps are similar, but the screening criteria are usually Real Estate Assets, Geography, and Sub-Industry. You can use traditional metrics and multiples like EBITDA and EV / EBITDA, but you’ll also use alternative ones such as FFO, P / FFO, NAV, and P / NAV, and, for IFRS-based REITs, Book Value and P / BV. To find the data, you can use “Related Companies” on Google Finance, get the assumed growth rates for the projections from sources like Yahoo Finance, and go from there.
Walk Me Through Your Resume: Quick Tip for Investment Banking Interviews
 
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In this lesson, you'll get a quick and easy-to-implement, but still very effective. By http://breakingintowallstreet.com/ "Financial Modeling Training And Career Resources For Aspiring Investment Bankers" You'll also get tips on how to improve your resume / CV walk-through in investment banking, private equity, and other finance interviews. Your resume walk-through is how you answer the "Tell me about yourself" or "Walk me through your resume" or "Why are you here today?" question when you walk into an interview and first introduce yourself. This is IMPORTANT because it's y our first impression, and interviewers often decide your status within the first 5 minutes of the interview. Come across well, and you can answer other questions poorly but still receive a job offer or move onto the next round; come across poorly, and you won't move to the next round no matter how great your Excel skills are. We recommend this outline for your resume walk-through: 1. The Beginning - Where you went to school, where you started out working, your family background, etc. 2. The Spark - What, specifically, made you interested in finance initially? A person? An event? Your parents day trading or running a business? A professor? An internship? 3. Growing Interest - How did you develop this interest via classes, activities, further internships or jobs, and your networking and self-study efforts? 4. The Future / Why You're Here Today - What's your future goal (advising / investing in companies?) and how will working at this firm allow you to contribute TO that firm while also achieving your long-term goals? THE PROBLEM: Often, the last part - the "Future" / "Why You're Here Today" segment is BORING and what you say sounds identical to everyone else's statement. "I want to become a trusted adviser to companies." "I want to invest in companies in XX sector." THE SOLUTION: Link it back to the FIRST PART of your story - either your Beginning or Spark - to make it more memorable and attention-grabbing. It works in movies (see: Inception and The Usual Suspects), and it works in interviews, too! Example 1: You're in a private equity interview, and your Spark is how you helped a private tech company raise funds; you saw additional expansion opportunities via partnerships and other deals, but in investment banking you just advise on one deal and that's it... so you started looking into PE in more detail. Instead of just saying, "I want to combine my interest in tech with my background in finance and invest in tech companies in the future," say: "So I'm here today because of that original situation with the private company that sparked my interest in the industry - I want to get more opportunities like that, where I can help improve businesses over the long-term via partnerships, acquisitions, and operational changes that you only get to implement in private equity. And in the future, I want to be an investor in the tech sector, and your firm is the best place for that because... [Insert the rest of your reasons here]" Example 2: You're in an investment banking interview, and your Spark was working at a non-profit that merged with another non-profit one summer, after which you started taking more finance classes and learning more about the industry. You have a background in public policy, and your long-term plan is to advise in the Project Finance / Public Finance sectors. Instead of just saying that for the last part of your story, you could say: "I want to advise organizations that may not be as ‘savvy’ about finance, like the merged non-profit I was at a few years ago – and become a trusted adviser to those types of public/private organizations. Your firm is the ideal place to do that because of [And insert references to other deals or clients they've advised here]."