Forum Search: capital markets
Quick & Dirty LBO
I have just done the online Quick & Dirty LBO and have some questions versus the Quick & Dirty we did with Hamiliton in class in September: - Shareholders equity: should be the equity we pay less transaction costs per online version. We did not do this in class but rather took the equity pa... Read More
I have just done the online Quick & Dirty LBO and have some questions versus the Quick & Dirty we did with Hamiliton in class in September: - Shareholders equity: should be the equity we pay less transaction costs per online version. We did not do this in class but rather took the equity pa... Read More
Re: Quick & Dirty LBO
1) When you do the Complex LBO, you see that we sensitize depending on transaction structure (i.e. recap vs purchase accounting). In Recap accounting, trx costs are expensed and in Purchase accounting, trx costs are capitalized and increase GW. However, in 2009, trx costs are expensed regardless. So... Read More
1) When you do the Complex LBO, you see that we sensitize depending on transaction structure (i.e. recap vs purchase accounting). In Recap accounting, trx costs are expensed and in Purchase accounting, trx costs are capitalized and increase GW. However, in 2009, trx costs are expensed regardless. So... Read More
IRR decline
In the quick and dirty LBO, the IRRs begin to decline after a certain point…. The instructors explaination is “ you growth rates, your capital, your revenue must continue growing at the same rate as your IRR for the IRR to continue to grow”… Does this mean your Revenue must grow at 22.5% ann... Read More
In the quick and dirty LBO, the IRRs begin to decline after a certain point…. The instructors explaination is “ you growth rates, your capital, your revenue must continue growing at the same rate as your IRR for the IRR to continue to grow”… Does this mean your Revenue must grow at 22.5% ann... Read More
Re: Implied P/E of debt
Ratios and multiples are simply inverses of each other. When discounting $100 by 10% over one year, one normally does $100/1.1 = $90.909091 However, old school finance teaches you to use PV factors, or $100 x 0.909091 = same result. The PV factor is derived by taking 1/1.1 which is the same mathemat... Read More
Ratios and multiples are simply inverses of each other. When discounting $100 by 10% over one year, one normally does $100/1.1 = $90.909091 However, old school finance teaches you to use PV factors, or $100 x 0.909091 = same result. The PV factor is derived by taking 1/1.1 which is the same mathemat... Read More
Re: Sources and Uses Questions
Usually mgmt rollover or other rollover equity does not affect sponsor IRR since everything is the same proportion. The capital structure of an LBO company post-deal various but rules of thumb are: Bank Debt: 25%-50% Bonds: 25%-50% Equity: 15%-40% Bank Debt includes: revolver, term loans, securit... Read More
Usually mgmt rollover or other rollover equity does not affect sponsor IRR since everything is the same proportion. The capital structure of an LBO company post-deal various but rules of thumb are: Bank Debt: 25%-50% Bonds: 25%-50% Equity: 15%-40% Bank Debt includes: revolver, term loans, securit... Read More
Re: Cost of Equity and Debt
Take a look at our free Share Repurchase video class at www.wstselfstudy.com (FREE TRIAL link). That summarizes opportunity cost of capital changes. In the context of an LBO, the cost of equity becomes the private equity... Read More
Take a look at our free Share Repurchase video class at www.wstselfstudy.com (FREE TRIAL link). That summarizes opportunity cost of capital changes. In the context of an LBO, the cost of equity becomes the private equity... Read More
DCF model - working capital item
Hi there, I would like to ask a question on the Discounted Cash Flow model; in particular, the change in working capital item. Just wondering how I can calculate this item? Do I add the following items: change in inventory, change in account receviables and change in account payables to find ... Read More
Hi there, I would like to ask a question on the Discounted Cash Flow model; in particular, the change in working capital item. Just wondering how I can calculate this item? Do I add the following items: change in inventory, change in account receviables and change in account payables to find ... Read More
Re: DCF model - working capital item
Excellent question. Please go to our main website: http://www.wallst-training.com/ and click on FREE RESOURCES. Scroll down in the first section to: Financial Statement Assumptions Download that PDF and refer to the... Read More
Excellent question. Please go to our main website: http://www.wallst-training.com/ and click on FREE RESOURCES. Scroll down in the first section to: Financial Statement Assumptions Download that PDF and refer to the... Read More
Re: Valuation - IRR
Yes, our Quick & Dirty LBO Modeling class calculates a simple IRR and our Complex LBO Modeling class calculates IRR in many different ways (triangulation of cash flows, with and without dividend payouts, etc). However, to simplistically answer your question, think of it this way - as you noted,... Read More
Yes, our Quick & Dirty LBO Modeling class calculates a simple IRR and our Complex LBO Modeling class calculates IRR in many different ways (triangulation of cash flows, with and without dividend payouts, etc). However, to simplistically answer your question, think of it this way - as you noted,... Read More
1) Why would new debt be labeled as next year's existing debt? It would also be labeled as such if it was short term. It would most likely be another completely new tranche of debt like the Sr Notes or something. Term Loan is a specific type of bank debt. 2) Correct, for credit ratings, you not o... 1) Why would new debt be labeled as next year's existing debt? It would also be labeled as such if it was short term. It would most likely be another completely new tranche of debt like the Sr Notes or something. Term Loan is a specific type of bank debt.
2) Correct, for credit ratings, you not only include capital leases, but also operating leases as a form of debt. We didn't bother including that and footnoted as such. You should. The reason we didn't is b/c the actual calculation goes beyond just adding Capital Leases and PVOL (PV of Operating Leases) but involves more intricacies such as imputed interest, etc and so since it wasn't a credit class, we didn't include it.
3) Preferreds many times receive partial equity treatment if they are very subordinated in the capital structure, or the covenants restrict payment, or has equity-linked features, like converts, PIKS, warrants, etc. And thus the best practice is to calculate both and negotiate/discuss with the rating agencies.
4) Correct, use book value not market value of equity. However, it's not necessarily b/c of liquidation. Mainly b/c market value of equity fluctuates and doesn't represent the actual dollars the company received in raising capital. You could spin it and say it's the Net $$ available after Assets - Liabilities, however, then there's the whole mark to market, etc so yes and no. While there are plenty problems with book value in our opinion, that's what's used.
5) This flows to the bottom of the Debt Sweep summaries and ultimately back into the Balance Sheet. See our Debt Sweep construction video in Complex LBO class.
6) We have to ask you to review the videos again - You are trying to isolate Long Term Debt b/c the Balance Sheet requires a breakdown of the Debt into Current and Long.
7) Please refer to a specific course, specific video and specific time.
8) Dividends are paid on actual basic shares outstanding, not the option-adjusted diluted shares. However, since we used PE ratios to gues-timate our stock price that we buyback shares at, PE x EPS is Price. And EPS is always quoted as Diluted EPS, so it is correct to do so. You aren't mixing and matching - these are two separate calculations altogether.
9) To be absolutely precise, yes, you should normalize the BS, although it is not best practice to do so. If you wanted to, the hit would be to Equity. It's immaterial b/c The BS gets blown out in an LBO anyway.
10) Estimated years are never provided on the 10K! 10K only has actuals. You may be referring to our Quick & Dirty LBO Modeling class in which we converted the Actual to Pro Forma. Thus, Estimated is your first year of projections and includes some actuals (say a day, a week, a month or a quarter, etc) whereas Projected is all future, not even one day of actuals. Read More