Forum Search: capital markets
Incorporating maintenance capex into free cash flow calc
Full Question: I took your "Corporate Valuation Methodologies" class and was impressed with the quality of the class and hope to take more in the future. I am struggling to find a valuation procedure that I'm comfortable with. The denominator should be EV. The appropriate numerator, in my view, ... Read More
Full Question: I took your "Corporate Valuation Methodologies" class and was impressed with the quality of the class and hope to take more in the future. I am struggling to find a valuation procedure that I'm comfortable with. The denominator should be EV. The appropriate numerator, in my view, ... Read More
WACC: market vs book value & what regulated industries?
Full Question: 1) Would you suggest for calculating the WACC (to be used as the discount rate) using the market value of the securities rather than book value in order to determine the weightings for the cost of debt and equity securities? (2) same question, but...If an industry was regulated (... Read More
Full Question: 1) Would you suggest for calculating the WACC (to be used as the discount rate) using the market value of the securities rather than book value in order to determine the weightings for the cost of debt and equity securities? (2) same question, but...If an industry was regulated (... Read More
Difference btwn $100 special dividend vs share repurchase
Full Question: As you know, a company can do a share repurchase, or a special dividend, when they're trying to return capital to shareholders on a standalone basis. Why is it that both a special dividend of $100 and a share repurchase of $100 of stock necessarily results in the same exact pro forma... Read More
Full Question: As you know, a company can do a share repurchase, or a special dividend, when they're trying to return capital to shareholders on a standalone basis. Why is it that both a special dividend of $100 and a share repurchase of $100 of stock necessarily results in the same exact pro forma... Read More
Forecasting working capital off future quarters' sales?
Full Question: When forecasting working capital levels on a quarterly basis, can I assume that the best approach, given the seasonality of retail stores, is to base my inventory/payables forecasts on that same quarter’s sales? Alternatively, would it be better to base my current quarter inventory... Read More
Full Question: When forecasting working capital levels on a quarterly basis, can I assume that the best approach, given the seasonality of retail stores, is to base my inventory/payables forecasts on that same quarter’s sales? Alternatively, would it be better to base my current quarter inventory... Read More
LBO Deal Structuring and Capital Lease Treatment Discussions
Full Question:
LBO Deal Structuring and Capital Lease Treatment Discussion Thread
Full Question:
LBO Deal Structuring and Capital Lease Treatment Discussion Thread
Leveraged-adjusted exchange ratios in M&A stock deals
Full Question: I would like to know how to correctly estimate exchange ratios in case of all-stock-transactions based on leverage-adjusted EBITDA, TEV, Equity Value, and Earnings contribution analysis. Think an adjustment needs to be made to account for the difference in capital structure of both c... Read More
Full Question: I would like to know how to correctly estimate exchange ratios in case of all-stock-transactions based on leverage-adjusted EBITDA, TEV, Equity Value, and Earnings contribution analysis. Think an adjustment needs to be made to account for the difference in capital structure of both c... Read More
RE: Capital leases - exclude vs include
Normally, per our instructions in the video, one would back out capital leases from the debt; however, because Costco's 10Q did not supply a full debt footnote in which we could have extracted such capital leases figures, we cannot just "make it up". One could argue to get it from Costco's 10K which... Read More
Normally, per our instructions in the video, one would back out capital leases from the debt; however, because Costco's 10Q did not supply a full debt footnote in which we could have extracted such capital leases figures, we cannot just "make it up". One could argue to get it from Costco's 10K which... Read More
RE: Incorporating maintenance capex into free cash flow calc
I think you've mixed up too many academic theories and practical application. Usually, the capex number includes maintenance capex. this is the same total capex number from the cash flow from investing line as well as capex in the FCFF calculation. this makes buffett's point about FCF including an a... Read More
I think you've mixed up too many academic theories and practical application. Usually, the capex number includes maintenance capex. this is the same total capex number from the cash flow from investing line as well as capex in the FCFF calculation. this makes buffett's point about FCF including an a... Read More
RE: Tax-effected EBIT vs EBITDA for DCF terminal value
In a DCF, for the perpetuity growth rate method of calculating terminal value, CF*(1+g)/(r-g), what would be the proper term for "CF"? One should not use EBITDA since it is merely a proxy for cash flow and does not properly estimate Free Cash Flow to Firm. EBITDA rightfully is before the effects of ... Read More
In a DCF, for the perpetuity growth rate method of calculating terminal value, CF*(1+g)/(r-g), what would be the proper term for "CF"? One should not use EBITDA since it is merely a proxy for cash flow and does not properly estimate Free Cash Flow to Firm. EBITDA rightfully is before the effects of ... Read More
This is definitelty akin to deferred revenue and unearned revenue (ie magazine subscriptions). Thus, not to be part of TEV and so the same answer - don't add or subtract. In the case of a merger, we would normally treat this as a closing adjustment due to working capital - that is, the buyer req... This is definitelty akin to deferred revenue and unearned revenue (ie magazine subscriptions). Thus, not to be part of TEV and so the same answer - don't add or subtract.
In the case of a merger, we would normally treat this as a closing adjustment due to working capital - that is, the buyer requires a minimum working capital of say, 60 days operating expenses. Any shortfall is a one-to-one deduct from price and any excess is a one-to-one increase to price.
However, one could argue that if this is a significant materially large number, it wouldn't be unreasonable for the buyer to ask for the revenue for that since according to accrual accounting, the existing owner shouldn't have spent it. That's a separate negotiation for working capital, but again, in our opinion is not a TEV adjustment. Since TEV doesn't include working capital shortfalls, its not "officially" part of TEV although it does affect purchase price as stated above.
As for revenue recognition and early invoicing - that's not GAAP and if it were publicly traded, the auditors would never let them get away with it, at least not today. Think back to dotcom bubble and all the restatements. Revenue recognition according to GAAP says "service performed" and "collected/collectible". If customer never agrees to renewal, then its not collectible. Read More