Re: Projection of FX translation
Gotcha. (i) How about if you are trying to project a company whose 50% of revenue comes from international market (say more than 2 international markets) and 50% from the US. Given significant portion of revenue from overseas, is there a need to project FX effect into the model? If so, how to do... Gotcha.

(i) How about if you are trying to project a company whose 50% of revenue comes from international market (say more than 2 international markets) and 50% from the US. Given significant portion of revenue from overseas, is there a need to project FX effect into the model? If so, how to do this?

(ii) On the note of international revenue, for cash repatriated from overseas operation (for example from core operating revenue or non-core revenue e.g. short term investments), isn't there a restriction on how much cash you can repatriate back to the US and this will affect debt paydown? How does FX translation play into this scenario and also in the model? Read More

Re: Seasonal Working Capital
If I'm the seller and you want a greater working capital requirement (i.e. deduction to purchase price), then I would respond and say, ok I spent all that money and I don't get the benefit of that once you presumably sell the inventory during Q4. If I'm the acquiror, I'd make the opposite case s... If I'm the seller and you want a greater working capital requirement (i.e. deduction to purchase price), then I would respond and say, ok I spent all that money and I don't get the benefit of that once you presumably sell the inventory during Q4.

If I'm the acquiror, I'd make the opposite case saying that you have to give me a business that is already "complete" and if I have to put in more money for Q4 inventory then that's really adding to purchase price.

However, next Q4, the acquiror has to do the same anyway, that is, put in more money for next holiday season. In our opinion, whomever puts the money in should be beneficiary of that operating cycle and its economic benefit. Read More

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