Forum Search: capital markets
RE: Deferred Acquisition Costs for Life Insurance Companies
the DAC as its called arises bc life insurers pay commissions upfront to brokers which obviously due to accrual accounting, matching principle must be amortized. Thus GAAP "underwriting income" is higher than Statutory underwriting income. Since for purposes of GAAP "EBITDA" and general ... Read More
the DAC as its called arises bc life insurers pay commissions upfront to brokers which obviously due to accrual accounting, matching principle must be amortized. Thus GAAP "underwriting income" is higher than Statutory underwriting income. Since for purposes of GAAP "EBITDA" and general ... Read More
RE: Levered vs. unlevered beta for cost of equity
In general we highly discourage the use of FCFE. See our valuation questions on the Ask the WST Expert link. You should always use levered beta to calc cost of equity. When using comps' beta, you first unlever beta then re-lever at target capital structure. Thus its a "normalized" levered industry b... Read More
In general we highly discourage the use of FCFE. See our valuation questions on the Ask the WST Expert link. You should always use levered beta to calc cost of equity. When using comps' beta, you first unlever beta then re-lever at target capital structure. Thus its a "normalized" levered industry b... Read More
RE: Free Cash Flow Tax Adjustment for Depreciation
Keep in mind the bigger picture. You are using book depreciation because the difference between tax and ook depreciation can be thought of as a working capital change which is in change in working capital in fcff calculation. Although technically deferred tax liabilities (which is difference btwn bo... Read More
Keep in mind the bigger picture. You are using book depreciation because the difference between tax and ook depreciation can be thought of as a working capital change which is in change in working capital in fcff calculation. Although technically deferred tax liabilities (which is difference btwn bo... Read More
RE: Net Debt and Working Capital
Our accepted best practice is NOT to adjust Debt (whether Total or Net) for Working Capital as Working Capital is an operating related question not a capital structure, financing related item. Please note that that is in the context of STANDALONE valuation. The assumption is alwasy that there is eno... Read More
Our accepted best practice is NOT to adjust Debt (whether Total or Net) for Working Capital as Working Capital is an operating related question not a capital structure, financing related item. Please note that that is in the context of STANDALONE valuation. The assumption is alwasy that there is eno... Read More
RE: Deferred Maintenance Revenue treatment for TEV
Thank you for your inquiry. Normally speaking, TEV focuses only on capital structure and "sources of funds". In other words, it focuses on valuation of entities. However, your question focuses on a "working capital", "day-to-day operations" of the company as opposed to capital structure. Th... Read More
Thank you for your inquiry. Normally speaking, TEV focuses only on capital structure and "sources of funds". In other words, it focuses on valuation of entities. However, your question focuses on a "working capital", "day-to-day operations" of the company as opposed to capital structure. Th... Read More
RE: Deferred Maintenance Revenue treatment for TEV
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... 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... Read More
RE: WACC tax rate adjustment for bea
Wacc is meant to capture marginal cost of capital. Effective tax rate and marginal (statutory) rates are not the same!
Wacc is meant to capture marginal cost of capital. Effective tax rate and marginal (statutory) rates are not the same!
RE: LBO enhanced model question
Summary Page a) The Illustrative Valuation box is meant for information only. The real key is the Sources & Uses of Funds. The Illustrative Valuation should be a snapshot of the current valuation of the entire company (even if less than 100% purchase). b) You can hard code the Equity Contrib... Read More
Summary Page a) The Illustrative Valuation box is meant for information only. The real key is the Sources & Uses of Funds. The Illustrative Valuation should be a snapshot of the current valuation of the entire company (even if less than 100% purchase). b) You can hard code the Equity Contrib... Read More
RE: TEV and negative net debt clarification
When we have more time in our longer courses, we go thru this simple explanation: If I buy your company for $100MM and there is $10MM of excess cash on the books, and you aren't allowed to touch it b/c you sold it to me, I have effectively paid a total of $100MM less $10MM b/c I take the cash and... Read More
When we have more time in our longer courses, we go thru this simple explanation: If I buy your company for $100MM and there is $10MM of excess cash on the books, and you aren't allowed to touch it b/c you sold it to me, I have effectively paid a total of $100MM less $10MM b/c I take the cash and... Read More
Yes, generally speaking, use the beta for the national market. But the key is match apples and apples - you must use the appropriate market risk premium to make the beta make sense! So for your Dutch company, use: 1) beta vs. Dutch national benchmark 2) the market risk premium of above benchma... Yes, generally speaking, use the beta for the national market.
But the key is match apples and apples - you must use the appropriate market risk premium to make the beta make sense!
So for your Dutch company, use:
1) beta vs. Dutch national benchmark
2) the market risk premium of above benchmark vs. risk-free rate
Why? Put in simple, short terms, you are trying to estimate the specific risk (as measured by discount rate, WACC) for that specific company, not your portfolio. At least that's the idea anyway.
Note: CAPM theory says risk-free rate is US Treasury, not local govt treasury. This is explained fully in our Finance 101 and valuation courses.
In the USA, S&P 500 for large caps, but the appropriate Mid- and Small Cap index for smaller firms, correct. Why trickier for Europe? Same concept as explained above! Large markets in Europe should be no problem. The Portuguese company however, is a different concept b/c if the top 5 weights represent 65% of the index, that's way too biased. Ask yourself - what are the alternative investment options for an investor if they don't invest in that Portuguese company or the PSI-20 Index? FTSE? Go to Spain? France? Pick that as the benchmark for beta then. Read More