RE: Modifying the Debt Sweep to Target a Debt/Capital Ratio
You can do a quick calcuation in your Cash Flow Statement, as part of CFF to calculate the current Debt / Capital ratio (typically Debt / Debt + Book Equity). Let's say your current ratio is 35% and you want to maintain 40% per our video example. Then you would figure out the amount of extra debt re... You can do a quick calcuation in your Cash Flow Statement, as part of CFF to calculate the current Debt / Capital ratio (typically Debt / Debt + Book Equity). Let's say your current ratio is 35% and you want to maintain 40% per our video example. Then you would figure out the amount of extra debt required to borrow (using simple algebra) and then add a new row in CFF, most likely under your Change in Debt (the one that comes from Debt Sweep). This would automatically increase the cash balance that you have. Keep in mind, if you are already at, say 42%, then don't do additional borrowings, but don't force a paydown since you have no extra money to pay down the debt. Read More

RE: Corporate Valuation: Nuances on these methodologies
Excellent questions! 1) For tons more detailed explanation on capital leases, please go to our new topic forums at www.wallst-training.com/forum and under Valuation Topics, we have a wealth more back and forth d... Excellent questions!
1) For tons more detailed explanation on capital leases, please go to our new topic forums at www.wallst-training.com/forum and under Valuation Topics, we have a wealth more back and forth discussion on capital leases. Do note that there are some who disagree with our assessment of capital lease treatment.

2) Assuming no changes going forward and assuming same stock price, correct. However, if you get Net Income and EPS from average analyst estimates, it would be different since they are both averages with different calculations by each analyst.

3) Since it seems you are calculating the "Reference Range", you still use options exercisable because you are calculating "standalone valuation". For an LBO valuation, since you are assuming a "change of control" you would use options outstanding.

4) Yes, to be exactly precise, you would need a different shares outstanding for each calculation, something that would give you more accuracy but isn't typically the norm since you end up summarizing the valuation ranges anyway, so it's not material.

5) You should include all deals, but with an emphasis on completed deals since those actually went through. Forward multiples in deal comps are not always available since you do not always have access to historical analyst reports. However, if you are compiling the multiples as deals are announced (as an investment banker should be in coverage groups) then you should include forward multiples, and for that, the template in our Complex Trading Comps template would be sufficient. Read More

RE: Advanced Valuation Modeling: Share repurchase
The shares do not get destroyed, but rather put aside by the treasury department and is called "Treasury Shares" in the Shareholders' Equity line on the Balance Sheet. The shares are not usually retired since they want the flexibility to re-issue the shares in the future without needing additional a... The shares do not get destroyed, but rather put aside by the treasury department and is called "Treasury Shares" in the Shareholders' Equity line on the Balance Sheet. The shares are not usually retired since they want the flexibility to re-issue the shares in the future without needing additional approvals from the Board of Directors.

Thus, there is no "new owner" and so no one gets dividends. Share repurchases are a way to return capital back to shareholders. There is much debate about what to do with excess cash, invest vs. return to shareholders, etc. Read More

stock trading
Here's a question that was posed to us: "in my financial markets class, we have a mock trading competition going on, and whomever wins at the end of the semester (70 or so days) will get a 10% increase in total points for the semester, which could potentially boost the grade up a letter. i, obviousl... Here's a question that was posed to us: "in my financial markets class, we have a mock trading competition going on, and whomever wins at the end of the semester (70 or so days) will get a 10% increase in total points for the semester, which could potentially boost the grade up a letter. i, obviously, really want to win; how do you suggest i go about this / what should i be looking at research-wise?"

our short answer:

If you aren't following the mkt each day, this is tough if not impossible to teach since your actions and selections now will affect the end portfolio value. In short, Identify the sectors that you think will outperform the market. Your goal isn't to maximize your profits but to beat the rest of the class. So considering what's going on now in the mkt, read up on interent, WSJ etc on what industries will do the best in this craphole of an economy. Then, within that sector, pick the best companies. The way to win is to totally pick specific stocks and not diversify. However the risks are obvious. If you don't pick the right stocks you really lose.

For instance, things to think about:
- traditionally in good times, small cap stocks do well as they usually play into niche areas. In bad times, small caps don't do well because no one is buying and they have less room for buffer since they don't have as much economies of scale
- clearly the banking sector is hurt right now. No one is immune but if you think there are a couple outliers, then pick them
- oil & gas: as oil prices go up, integrated oils like exxonmobil do well, refineries like valero don't. As oil goes up, airlines suufer. Opposite is true. So take a stance on oil prices. Read up on full implications and make a decision
- retailers - discounters like wmt do well now, as does costco. But then costco got hurt more than wmt since costco had less room to quickly raise prices whereas wmt is able to control prices more but costco has a lot of private label (kirkland) so when costs up, they couldn't pass along as quickly
- since you are now literally living thru history, and the bailout hasn't passed yet, ask, who will benefit most when it does pass? Make the bet
- think global economics and the balance of payments and interest rate parity. As the US needs to issue more debt in future for bailout and other reasons, the $ will likely continue to depreciate. So pick companies with lots of international exposure. However, its relative to europe and asia - if they suffer more than US, then dollar will appreciate, if not, then reverse
- you probably can't short else you can do lots of stuff. Pick the opposite and short them to magnify returns

Final assessment: research all the different trends and relationships. Identify what you believe will happen and go from there. This is what portfolio mgrs do and takes yrs to perfect. Welcome to finance. Read More

RE: Change in Net Working Capital
The rationale is quite simple - since you are trying to calculate the amount of cash, don't include it in working capital calculation, otherwise you are double counting. The whole point of FCFF in the DCF is to estimate the amount of cash the firm generates.