RE: Complex Trading Comps Analysis: Weighs question
The weights for wacc in complex trading comps were estimated based on the target capital structure of the industry that is "normalized". If the weights are roughly the same as the actual, then it doesn't really matter which one to use. However, in a case of Costco, with no debt, one may want to sens... The weights for wacc in complex trading comps were estimated based on the target capital structure of the industry that is "normalized". If the weights are roughly the same as the actual, then it doesn't really matter which one to use. However, in a case of Costco, with no debt, one may want to sensitize the capital structure for actual (no debt) and a industry average.

There are no silly questions - unless you are asking what LTM stands for! Read More

Re: Cash Flow and Balance Sheets for M&A Models
Generally speaking, when pitching, it is not required since its a bit overkill and you don't have all the required info from mgmt.

However, in real deals, it is critical to build the fully blown version. This is covered in our super-advanced m&a class

Re: Bank Modeling
You are not incorrect.
However, the convention is for Recoveries to be offset against GCO. Keeping in mind that GCO don't impact the IS, so hence you don't see it as a net against Provisions.

Re: adv lbo model questions
Sources & Uses: - from the Merger courses, the legal structure can be stock or asset (most likely stock for an LBO, but not necessarily) - regardless of stock vs asset deal, debt refi'ed, etc is same treatment: you are buying the entire company - equity premium: based on appropriate valuation of... Sources & Uses:
- from the Merger courses, the legal structure can be stock or asset (most likely stock for an LBO, but not necessarily)
- regardless of stock vs asset deal, debt refi'ed, etc is same treatment: you are buying the entire company
- equity premium: based on appropriate valuation of the company
- excess cash: really means lower net debt (covered in our LBO Overview class) will make the equity injection less and thus, more attractive, correct
- various fees: again, please refer to LBO Overview course where there are several slides on various fees

Sources:
- cash: correct. usually a bridge loan is required since you don't have access to the cash

Valuation:
- TEV multiples: yes, after you do your valuation (and know how much to pay); also, this is quite often sensitized

P&L:
- D&A: doesn't usually include amortization of debt financing fees as the fees are capital structure related and technically go into Interest Expense; thus, it's not considered when calculating EBITDA
- Pro Forma: interest set to Year 1 primarily for smoothened leverage ratios (Interest coverage in particular); since the entire cap structure is altered, the last historical year of interest is irrelevant

PPA:
- correct to all of the above. Goodwill is still important - in this case, we assumed that the goodwill is re-allocated at the current cost basis, which is the implicit assumption when you don't do the full PPA as discussed in Merger courses

CF:
- debt financing fees: correct, non-cash expense in projection years as it was paid in cash during the deal; this is capitalized and amortized; hence the BS item change

Ratios:
- Cum. Debt Paydown: this is covered in the videos: just take Year 0 Pro Forma debt balance (fully anchored) and subtract the new Total Debt balance
- % Paid: take the Cum. Debt Paydown and divided by the Year 0 Pro Forma debt balance (fully anchored) and you'll have it
- your method is too complicated follow the videos! we show you the fastest and most efficient way to calculate! Read More

Re: Working Capital in FCF for Valaution Purposes
The idea behind changes in working capital is that when you value (or buy) an entity, you are buying the company on a going concern basis, able to support its own operations. if you agreed to purchase a company for $100 and it turns out that you still have to put in $10 MORE because there was no wor... The idea behind changes in working capital is that when you value (or buy) an entity, you are buying the company on a going concern basis, able to support its own operations. if you agreed to purchase a company for $100 and it turns out that you still have to put in $10 MORE because there was no working capital left on the books, then in essence, you really paid $110 for the company. Thus, in purchase agreements, there is always a negotiated and agreed upon working capital requirement. In the case of FCFF, it's the same concept - because you have to continue to support your operations, this reduces the amount of cash that you can receive, that is, the amount of "free" or "excess cash generated" is reduced by this obligation.

If you agree that Inventories should be part of the working capital calculation, then you should also see why A/P and A/R are. They are due to operations; in the case of A/R, you sold good (sales) but haven't yet collected and yet, you need to pay your suppliers & vendors (COGS) and thus, those are all cash impacts, the net of which is the change in working capital. Just like you have to buy inventory to support COGS & Sales!!

Please don't overthink it. A/P is NOT an interest free loan or borrowing, it is trade credit. You are correct in your assessment of A/R being earnings in transit and thus, unless you collect immediately on everything you sell, you will have to support that trade credit to your customers; hence a working capital item required to support day-to-day operations. A/P is the same concept, but reversed. Thus, both are included in working capital cahnges. Read More