Forum Search: capital markets
RE: Free Cash Flow to Firm vs. Free Cash Flow to Equity
In general, free cash flow to equity is a useless number. Free cash flow to firm is by far the superior method over free cash flow to equity. Free cash flow to firm takes into the account the capital structure differences between two companies, again per the enterprise value and equity value relatio... Read More
In general, free cash flow to equity is a useless number. Free cash flow to firm is by far the superior method over free cash flow to equity. Free cash flow to firm takes into the account the capital structure differences between two companies, again per the enterprise value and equity value relatio... Read More
RE: Please clarify if any value is gained by buying back stock.
You have to remember the core lessons from my valuation class! If nothing else has happened to the company, why should there be a change to the value of the company (enterprise value)? If the "core, recurring profitability from core operations" has not changed, there is no change to TEV. Capital str... Read More
You have to remember the core lessons from my valuation class! If nothing else has happened to the company, why should there be a change to the value of the company (enterprise value)? If the "core, recurring profitability from core operations" has not changed, there is no change to TEV. Capital str... Read More
RE: What do I do for beta of a company if there is no beta?
If there is no beta, use publicly traded competitors' beta! This is covered in our Corporate Valuation and Valuation (Trading Comps) classes. If a company has no beta, what are you regressing when you say regress the company's excess return to market? If a company has returns, then by definition the... Read More
If there is no beta, use publicly traded competitors' beta! This is covered in our Corporate Valuation and Valuation (Trading Comps) classes. If a company has no beta, what are you regressing when you say regress the company's excess return to market? If a company has returns, then by definition the... Read More
RE: For the WACC, should I use YTM or coupon for cost of debt?
For WACC, you are supposed to use YTM, but for non-distressed, run-rate firms, we generally end up using coupon rate. For option-embedded bonds (putable, callable, exchangeable, convertible etc) technically neither YTM or coupon works since you must then incorporate TOTAL expected return on the capi... Read More
For WACC, you are supposed to use YTM, but for non-distressed, run-rate firms, we generally end up using coupon rate. For option-embedded bonds (putable, callable, exchangeable, convertible etc) technically neither YTM or coupon works since you must then incorporate TOTAL expected return on the capi... Read More
RE: Why arent lease payments considered future debt obligations?
Operating leases are off-balance sheet and are a result of an operating related decision and not a financing decision. The expense related to an operating lease would go under COGS or SG&A and not in interest expense (although, yes, there is an associated imputed interest expense, but ignoring t... Read More
Operating leases are off-balance sheet and are a result of an operating related decision and not a financing decision. The expense related to an operating lease would go under COGS or SG&A and not in interest expense (although, yes, there is an associated imputed interest expense, but ignoring t... Read More
RE: Private Company M&A and LBO adjustments
The ramifications for a private company vs a public company are very similar - the major difference is that there is no EPS and Shares Outstanding. Thus, to "fudge it", you could assume that there is one Share Outstanding or, better yet, to be more precise, you would use Net Income => so instead ... Read More
The ramifications for a private company vs a public company are very similar - the major difference is that there is no EPS and Shares Outstanding. Thus, to "fudge it", you could assume that there is one Share Outstanding or, better yet, to be more precise, you would use Net Income => so instead ... Read More
RE: Insurance Company LBO Question
Typically, if holdco raises new capital inform of debt + equity, it would invest that capital directly downstream into insco. So, the total proceeds are treated as a contribution to statutory surplus at the subsidiary level. If it's an acquisition and there's no new cash created at holdco, then ther... Read More
Typically, if holdco raises new capital inform of debt + equity, it would invest that capital directly downstream into insco. So, the total proceeds are treated as a contribution to statutory surplus at the subsidiary level. If it's an acquisition and there's no new cash created at holdco, then ther... Read More
RE: Treatment of liabilities on the BS (as debt) in an M&A
The answer is no - when we look at transaction value, we are trying to gauge financial value not operating related items. Long term liabilities and working capital and other non-financial securities are to be excluded. Deferred income taxes also fall in that category since that's not a capital struc... Read More
The answer is no - when we look at transaction value, we are trying to gauge financial value not operating related items. Long term liabilities and working capital and other non-financial securities are to be excluded. Deferred income taxes also fall in that category since that's not a capital struc... Read More
RE: How do you maximize earnings accretion?
Aside from the favorite answer - SYNERGIES, there are several issues to consider when structuring a transaction to maximize earnings accretion. The first question is to whether to pay with stock, cash or a combination of the two. The next question is what are the relative P/E ratios of the Acquiror ... Read More
Aside from the favorite answer - SYNERGIES, there are several issues to consider when structuring a transaction to maximize earnings accretion. The first question is to whether to pay with stock, cash or a combination of the two. The next question is what are the relative P/E ratios of the Acquiror ... Read More
Generally, in a standalone valuation context, such as a trading comps analysis, unfunded pension liabilities are not adjusted for. Trading comps attempt to quantify the current market valuation parameters. Unfunded pension liabilities are not considered part of the capital structure as it is not a f... Generally, in a standalone valuation context, such as a trading comps analysis, unfunded pension liabilities are not adjusted for. Trading comps attempt to quantify the current market valuation parameters. Unfunded pension liabilities are not considered part of the capital structure as it is not a form of capital in the equity value, net debt, preferred and minority interest summation to get to enterprise value.
Unfunded pension liabilities would definitely be adjusted in an M&A context primarily as a purchase price allocation - when buying a company, the acquiror would want to make sure the pension is fully funded and so, would deduct unfunded pension liabilities from purchase price or insert a clause that the seller is responsible for paying future liabilities.
However, in extreme cases of unfunded pension liabilities (such as large unfunded liability), one might decide to adjust for it under certain circumstances when calculating current market valuation. However, it really depends on the specific situation and contxt. In such a standalone situation, valuation multiples would not really be affected since unfunded pension liability typically does not hit the Income Statement, but instead through Other Comprehensive Income. Read More