RE: Treatment of converts for TEV
Per the instruction in the video, it clearly stipulates that the key question in the costco converts rests on the timing - how long away is the maturity of the converts? if it matures tomorrow, the holder wouldn't convert b/c they can get more by simply holding to maturity and receiving par value. a... Per the instruction in the video, it clearly stipulates that the key question in the costco converts rests on the timing - how long away is the maturity of the converts? if it matures tomorrow, the holder wouldn't convert b/c they can get more by simply holding to maturity and receiving par value. as financial analysts in the generic sense, one cannot introduce subjectivity as to say when is "far away enough" that a rationale investor would convert.

Again, to re-iterate our point, you mentioned PV of converts vs equivalent number of costco common shares - true statement, however, what costco shares suddenly dropped the next day? then it is suddenly out of the money and one wouldn't convert; thus, the timing of WHEN the PV is as of (in this case, years later) is critical - can one be absoultely sure that the price would go up in five years? ten years? most people would say yes, and we would disagree - case in point is WMT (wal-mart), the stock price has been stagnate and sideways for the past 5-7 years.

Thus, it is our opinion that it is NOT guaranteed that a rationale investor would necessarily convert given the specific information supplied for Costco at that given time.

Finally, pls note that the CFA is a great credential to have, but is still based on the textbook and not applied in real life. Read More

Re: GAAP requirement to recognize all known liabilities
Thank you for clarifying your question. Our initial response (which was based in part on the Advanced M&A module) is in reference to PERMANENT differences in taxes, which will never reverse in the future. An example of this is the deductibility of certain identifiable intangibles for GAAP but no... Thank you for clarifying your question.
Our initial response (which was based in part on the Advanced M&A module) is in reference to PERMANENT differences in taxes, which will never reverse in the future. An example of this is the deductibility of certain identifiable intangibles for GAAP but non-deductible for TAX purposes.

Your revised question is in reference to TEMPORARY differences in taxes, in which both a CURRENT and DEFERRED income taxes is shown on the financials. TEMPORARY differences are the only reason that result in DEFERRED TAXES. DTA = Deferred Tax Asset, which is usually due to NOLs (Net Operating Losses) and DTAL = Deferred Tax Liabilities, which is usually due to accelerated depreciation treatment for TAX purposes.

This is thoroughly covered in our Enhancements to the Core Model - Part II course in which we build this out and fully explain the calculations:
http://www.wstselfstudy.com/package3.html Read More

Re: conditional average
You cannot do an averageif with arrays. you would have to use a SUM+IF condition and then divide by COUNT+IF condition. the reason is that averageif will put in zeros when the condition is not met and the average will include the zeros.

RE: Leveraged Buyout Overview: about goodwill
You are absolutely correct - you are thinking about FMV step-up in which you step up the assets of the Target Company to "fair market value", in particular, SFAS 141/142 and IFRS 3. In our model, we currently assume for arguments sake that there is no FMV step-up which primarily only affects Invento... You are absolutely correct - you are thinking about FMV step-up in which you step up the assets of the Target Company to "fair market value", in particular, SFAS 141/142 and IFRS 3. In our model, we currently assume for arguments sake that there is no FMV step-up which primarily only affects Inventory and PPE for the most part for most "normal" companies. Then, in that case, Goodwill is Purchase Price - Tangible Book Value - FMV Allocation - Intangibles Allocation. Read More

Re: Enterprise Value Formula
There is always a component of cash that cannot be used that is for working capital purposes. The true definition of excess cash is the total Cash & Equivalents (usually including Short-Term investments as well) and then subtract this required amount. The excess (the difference) is the Excess C... There is always a component of cash that cannot be used that is for working capital purposes.
The true definition of excess cash is the total Cash & Equivalents (usually including Short-Term investments as well) and then subtract this required amount.
The excess (the difference) is the Excess Cash that is technically not required to run the business.

In practice, however, the general best practice is to simply take the total cash figure. While we recognize this is flawed, the level of precision required is immaterial and generally insignificant (unless you're GM! - you get the point) and as such, we don't actually calculate true "excess cash".

For a bit more insight on a related topic to excess cash, go here:
viewtopic.php?f=3&t=489&p=1107 Read More