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Discounted EVA approach
I am attempting to apply an EVA (Economic Value-added) approach to measure value creation over a series of years. I am wondering if you can help validate whether the approach below is sound. The copy-and-paste function does not properly align the #s, but basically i simply multiply averageinvested... Read More
I am attempting to apply an EVA (Economic Value-added) approach to measure value creation over a series of years. I am wondering if you can help validate whether the approach below is sound. The copy-and-paste function does not properly align the #s, but basically i simply multiply averageinvested... Read More
Discount rate when FCFF = FCFE
Suppose a company ceases or dramatically slows its capex such that Op Cash Flow approximates FCF (and assume there are no changes in working capital) and enjoys a perpetual stream of relatively steady cash flows from its existsing asset base without the need to heavily reinvest (e.g. this would be a... Read More
Suppose a company ceases or dramatically slows its capex such that Op Cash Flow approximates FCF (and assume there are no changes in working capital) and enjoys a perpetual stream of relatively steady cash flows from its existsing asset base without the need to heavily reinvest (e.g. this would be a... Read More
Re: Discount rate when FCFF = FCFE
Generally, we are not advocates of using FCFE. However,the scenario you proposed effectively equates FCFF = FCFE. If that were to be the case forever, as you stated, then it doesn't matter which discount rate you would use, since weight of debt in the WACC calculation would be zero and in theory, WA... Read More
Generally, we are not advocates of using FCFE. However,the scenario you proposed effectively equates FCFF = FCFE. If that were to be the case forever, as you stated, then it doesn't matter which discount rate you would use, since weight of debt in the WACC calculation would be zero and in theory, WA... Read More
Re: Discounted EVA approach
Your approach seems correct. Don't forget terminal value as well.If you're going out 25 years, then it won't have a major impact anyway. Make sure that Total Capital is Debt + Equity (preferred, etc). normally, we use book values for all. particularly important when comparing market values of equit... Read More
Your approach seems correct. Don't forget terminal value as well.If you're going out 25 years, then it won't have a major impact anyway. Make sure that Total Capital is Debt + Equity (preferred, etc). normally, we use book values for all. particularly important when comparing market values of equit... Read More
Re: Discounted EVA approach
Thanks for the reply to the initial question, but i have a follow-up I would welcome your perspective on. It is appropriate to think of EVA as a 1-time instance of value-creation or a perpetuity? I.e. if you invest capital at an X return and it cost Y and the spread between X and Y creates economi... Read More
Thanks for the reply to the initial question, but i have a follow-up I would welcome your perspective on. It is appropriate to think of EVA as a 1-time instance of value-creation or a perpetuity? I.e. if you invest capital at an X return and it cost Y and the spread between X and Y creates economi... Read More
Re: Discounted EVA approach
Actually, we don't really like EVA much - it originally took on importance as a mgmt compensation metric as opposed to a valuation approach. By definition, it will yield a lower valuation since you are subtracting out the cost of capital, so you can think of it almost as an attempt to measure "... Read More
Actually, we don't really like EVA much - it originally took on importance as a mgmt compensation metric as opposed to a valuation approach. By definition, it will yield a lower valuation since you are subtracting out the cost of capital, so you can think of it almost as an attempt to measure "... Read More
Re: calculating CHANGE in N.W.C , why monthly and not annual?
Good question! It is common convention to estimate working capital requirements for a service-based business, like insurance brokers or asset managers, to be 30 or 60 days of expenses (primarily to cover 1-2 months of salaries). As such, the change in working capital calculated as the difference fr... Read More
Good question! It is common convention to estimate working capital requirements for a service-based business, like insurance brokers or asset managers, to be 30 or 60 days of expenses (primarily to cover 1-2 months of salaries). As such, the change in working capital calculated as the difference fr... Read More
Re: Projected balance sheet challenge
No, if your BS doesn't balance, chances are it is because every item on the BS that is changing from year to year is probably not properly reflected on the CF statement. Here are the general steps to checking and troubleshooting your non-balancing model 1) Check all your subtotals and totals on the ... Read More
No, if your BS doesn't balance, chances are it is because every item on the BS that is changing from year to year is probably not properly reflected on the CF statement. Here are the general steps to checking and troubleshooting your non-balancing model 1) Check all your subtotals and totals on the ... Read More
quick question
This question was bothering many people - thought you'd be the only one who would know the real answer. Should ESO expense be included in DCF or not? We value biotechs on pure cash flow basis, and convert the GAAP oprating income to non-GAAP before adjusting for working capital/capex etc. DCF c... Read More
This question was bothering many people - thought you'd be the only one who would know the real answer. Should ESO expense be included in DCF or not? We value biotechs on pure cash flow basis, and convert the GAAP oprating income to non-GAAP before adjusting for working capital/capex etc. DCF c... Read More
This is an interesting question that begs of the purpose of WACC. If the government subsidy is permanent - as in, it is GUARANTEED that they will ALWAYS receive it, then you can consider it to be permanent and you would alter WACC as follows: $150 total: $45 Gov't @ 0% cost of capital $73.5 debt @ ... This is an interesting question that begs of the purpose of WACC.
If the government subsidy is permanent - as in, it is GUARANTEED that they will ALWAYS receive it, then you can consider it to be permanent and you would alter WACC as follows:
$150 total:
$45 Gov't @ 0% cost of capital
$73.5 debt @ kd (70% of $105)
$31.5 equity @ ke (30% of $105)
take your weighted average off those weights
If calculating for project specific discount rate, then obviously include the 0% source of capital.
if however, the subsidies are project specific, then it's not a permanent source and you would simply ignore it if you're trying to figure out a firm-wide WACC:
70% debt @ kd
30% equity @ ke Read More