Re: Seasonal Working Capital
Let's say that the deal is closing at peak inventory (beginning of quarter 4, before the holiday season); if this were the case, should the LTM average net working capital be used or should a higher target be used given the expected seasonal increase in working capital?

Re: Capital Leases, and other scenarios
1) Capital leases are not considered debt for the purposes of TEV calculation for the same reason that operating leases are not. For interest expense ratios and debt ratios for credit purposes, you WOULD include BOTH capital and operating leases. Our footnote in cell A48 of Ratios tab specifies this... 1) Capital leases are not considered debt for the purposes of TEV calculation for the same reason that operating leases are not. For interest expense ratios and debt ratios for credit purposes, you WOULD include BOTH capital and operating leases. Our footnote in cell A48 of Ratios tab specifies this exclusion. In our debt focused financial modeling courses (not available online at this point unfortunately), we do in fact incorporate it correctly.

2) If Debt/Cap is lower than target then that means the company has some additional flexibility in altering their cap structure in the future, such as raising debt to fund stock buybacks, assuming the targets are reasonable.

3) This is provided by S&P - you would need a subscription to S&P or Moodys.

4) We rounded the figures in the Reference Range tab as you can see from the blue hard coded cells. No problem at all to make those a direct cell reference to the DCF tab as appropriate. Read More

Accounting question on
A company invest in a target and obtain 40% stake for 120mn. So the target is valued at 300mn. 6 months later, the company is increasing its stake in the target from 40% to 60%. The announcement read: "The increased stake will take effect following a share capital increase, whi... A company invest in a target and obtain 40% stake for 120mn. So the target is valued at 300mn.

6 months later, the company is increasing its stake in the target from 40% to 60%.

The announcement read:

"The increased stake will take effect following a share capital increase, which will see the conversion of a portion amounting to US$15.5m of share premium reserve held by target into 15.5mn shares in target to be issued to the Group. Following the share capital increase, the Group intends to fully support target’s business development plan and finance its development over the next three years."

So my question is how to calculate the new deal value if it deviates from the original 300mn in 6 months ago.

What I tried:

method 1:
use the share capital increase amount US15.5 / 20% = 77.5mn
then this means the deal value declined from 300mn to 77.5mn


method 2:
since the target has issued more shares to raise company stake from 40% to 60%.
So I solve the share capital increase as a plug number to see how much share capital need to issue to the company to reach 60% stake. The plug number i get is 150m.
if the share capital increase is 150 represent 20% stake, then 150 / 20%, the new equity value is 750m - doubled from 6 months ago.

So I don't think both calculation for new equity value is right. Thanks for your help in advance Read More

Re: Convertible Bonds
The classification of the convert would only have implications on debt to cap and related ratios. Generally speaking, if the accountants/auditors have blessed the 80/20 split on the BS, then that is the way to go. For building the debt sweep, MOST of the time, there is NO cash flow sweep required on... The classification of the convert would only have implications on debt to cap and related ratios. Generally speaking, if the accountants/auditors have blessed the 80/20 split on the BS, then that is the way to go. For building the debt sweep, MOST of the time, there is NO cash flow sweep required on CB since it’s all the way at the bottom of the capital structure, but this needs to be validated by the credit agreement. Likewise, any interest (cash interest or PIK) would typically accrue on the entire $1,000 balance. Typically, the only challenge is the decide the in-the-moneyness of the convert at exit, during the Enterprise Value to Equity Value calculation. Read More

Re: Seasonal Working Capital
Is this in the context of an M&A and deciding working capital purchase price adjustments? If so, we would ask: When is this business being acquired - specifically when is deal closing? Is closing going to coincide at what part of the inventory build cycle? i.e. at the absolute low inventory (righ... Is this in the context of an M&A and deciding working capital purchase price adjustments? If so, we would ask:

When is this business being acquired - specifically when is deal closing? Is closing going to coincide at what part of the inventory build cycle? i.e. at the absolute low inventory (right after holiday season perhaps), beginning of inventory build (say mid to end of quarter 1) or at the peak inventory (usually at beginning of quarter 4, before holiday season). The way we would approach this question is to figure out if the inventory build is natural over the entire year or or quick increase in inventory? Either way, what we're trying to get at is to figure out if the inventory build should be already subsidized by the normal year's working capital throughout the year.

Regarding employee bonuses, this is supposed to be a non-factor because one is supposed to be accruing bonuses (i..e expensing on IS month to month). Just like how you would consider prepaid assets to be part of you working capital calculation, the opposite, in this case, deferred compensation or possibly compensation payable, would also be included as part of the working capital calculation. If the company has NOT yet been accruing bonuses over the year, then this is pretty straightforward we think - make the accrual for bonuses now, so basically the seller is responsible for bonuses up until deal closing, and the acquirer is responsible for bonuses after deal closing through the end of the year and then beyond. Read More