RE: Finance 101: DDM?
The answers to your question are all covered in great detail in our Corporate Valuation class!

Coupon rate = actual cash interest paid
YTM = yield to market or the market rate since the bond was issued

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... 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 from year to year. this rule of thumb generated from M&A purchase price agreements that stated required minimum working capital requirements (else the acquiror has to fund working capital, thus, increasing purchase price).

This does not apply for manufacturing and capital intensive businesses, in which case, the full blown BS and CF would be required to capture a more accurate working capital requirement (and thus, change in working capital). Read More

RE: For the WACC, should I use YTM or coupon for cost of debt?
For WACC, you are supposed to use YTM, but for non-distressed, run-rate firms, we generally end up using coupon rate. For option-embedded bonds (putable, callable, exchangeable, convertible etc) technically neither YTM or coupon works since you must then incorporate TOTAL expected return on the capi... For WACC, you are supposed to use YTM, but for non-distressed, run-rate firms, we generally end up using coupon rate. For option-embedded bonds (putable, callable, exchangeable, convertible etc) technically neither YTM or coupon works since you must then incorporate TOTAL expected return on the capital, including capital gains as well! Keep in mind that cost of debt is technically supposed to be "incremental, marginal" borrowing rate, which cannot be physically observed until the next tranche of debt is actually issued, so YTM is the best proxy for that. Read More

Re: Balance Sheet Not Balancing
Remember, the key to balancing a model (in general and when modifying off a template) is DOUBLE-ENTRY ACCOUNTING. ANY account that changes on the BS must be reflected somewhere on the Cash Flow Statement. Sounds like you need to add a line in the Cash Flow Statement for that "new" line. ... Remember, the key to balancing a model (in general and when modifying off a template) is DOUBLE-ENTRY ACCOUNTING.

ANY account that changes on the BS must be reflected somewhere on the Cash Flow Statement.
Sounds like you need to add a line in the Cash Flow Statement for that "new" line. So essentially, an account balance changes, but without the corresponding double-entry. Which explains why when you set it equal to last year (no change), the model balances. Read More

RE: Why arent lease payments considered future debt obligations?
Operating leases are off-balance sheet and are a result of an operating related decision and not a financing decision. The expense related to an operating lease would go under COGS or SG&A and not in interest expense (although, yes, there is an associated imputed interest expense, but ignoring t... Operating leases are off-balance sheet and are a result of an operating related decision and not a financing decision. The expense related to an operating lease would go under COGS or SG&A and not in interest expense (although, yes, there is an associated imputed interest expense, but ignoring that since it's an accounting recognition rule as opposed to an economic decision). When determining current debt balance, as financial analysts, we primarily care about forms of capital (equity, debt, preferred, minority interest, etc) and so, we want to look at items related to how one financed the business (a financing decision), as opposed to operating related items (an operating decision). The same applies to capital leases as well. Capital leases are the same thing as operating leases except for the accounting treatment and so we also ignore capital leases in the context of current debt balance. Note that some companies, such as Wal-Mart, list capital leases as a separate item on the Balance Sheet and some other companies include capital leases as a part of debt (per debt footnote), depending on the overall materiality of the amount and mgmt preference.

The same applies for capital leases - don't forget, the difference between an operating and capital lease is one dictated by the FASB: if you are a SNOB, you must be classified as a capital lease, on the books. Acronym for SNOB:
S:Seventy-five percent (75%) of useful life
N:Ninety percent (90%) of FMV (fair market value)
O:Ownership (transfer of ownership at lease termination
B:Bargain Price (bargain price to buy asset at least termination, ie: $1) Read More