Forum Search: capital markets
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
Re: quick question
Short answer (subject to change based on nuances and your actual approach), is not to adjust for ESO. Because we assume the cash required by the company upon exercise is raised by issuing new shares (hence treasury method of adjusting for dilutive options). If one adjusts for ESO as a non-cash adj... Read More
Short answer (subject to change based on nuances and your actual approach), is not to adjust for ESO. Because we assume the cash required by the company upon exercise is raised by issuing new shares (hence treasury method of adjusting for dilutive options). If one adjusts for ESO as a non-cash adj... Read More
Re: Why use average (industry) beta?
Hi, thank you for the explanation, that makes it quite clear. If you don't mind, please let me ask this follow on question regarding WACC for a stand-alone valuation: Let's say I want to make a DCF of a listed smaller Biotech company to determine if this company would be a good candidate for an acq... Read More
Hi, thank you for the explanation, that makes it quite clear. If you don't mind, please let me ask this follow on question regarding WACC for a stand-alone valuation: Let's say I want to make a DCF of a listed smaller Biotech company to determine if this company would be a good candidate for an acq... Read More
Re: Merger Modeling & LBO Modeling - FASB 141r
Transaction costs are now expensed. for simplicity, we treat it the same as tendor costs, that is, via Retained Earnings on the BS. If you want to be really correct, you would have a tax savings on that which we'd run through our NOL schedule. Ditto for tender costs, but it's so immaterial, we chose... Read More
Transaction costs are now expensed. for simplicity, we treat it the same as tendor costs, that is, via Retained Earnings on the BS. If you want to be really correct, you would have a tax savings on that which we'd run through our NOL schedule. Ditto for tender costs, but it's so immaterial, we chose... 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... 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, WACC and cost of equity would be the same.
However, normal best practices is to use an "industry-wide" accepted average capital structure in valuing such companies with no debt (or private companies as well). And that's when using a "target normalized" capital structure weights and cost of debt comes into play. For more information, head to our Finance 101 course and Private Company Valuation course as well. Read More