Questions on calculating items for multiples (9 questions)
Multiples 1. For P/E, you only use net income from continued operations and income to common shareholders (excluding minority interest), correct? 2. Do you need to take out the EBITDA from discontinued operation from EV/EBITDA? usually EBITDA isn’t broken out that way and I don’t know if t... Multiples 1. For P/E, you only use net income from continued operations and income to common shareholders (excluding minority interest), correct? 2. Do you need to take out the EBITDA from discontinued operation from EV/EBITDA? usually EBITDA isn’t broken out that way and I don’t know if there is usually any disclosure on EBITDA from discontinued vs continued operation. Is that why you usually do not adjust EBITDA for discontinued operation? 3. When you take forward or historical P/E or EV/EBITDA, EV/revenue etc multiples from capiq, Bloomberg etc, are these already adjusted for you? (taking out minority interest and discontinued operation) or do you have to recalculate one by one? 4. Are you including MI in total debt because you are including these in TEV calculation? You exclude MI from total debt when you are calculating solvency and liquidity ratios right? 5. Adjustments for non-recurring items: these should have been captured in the company disclosures of their reconciliation from GAAP non GAAP numbers right? So less need to read through the footnotes to look through item by item? 6. If you are calculating FCF ratios eg EV/FCFF, how do you adjust for these non recurring items? Diluted share calculation 7. Diluted share outstanding number is from WACSO or from financials, what if the number has changed since the release of the latest financials? Say the company has issued additional share and the number from Bloomberg or capiq is the latest share count since the release of the financials? Which number do you use to calculate equity value and to calculate diluted share? Does this change the exercisable share number stated on the financials to use to calculate the diluted share as well? 8. How do you calculate diluted share outstanding if you have different class of stocks (class A, B, C etc)? Are these all usually common stocks? 9. Currently exercisable options on the financials are those that can be exercised per that date in the financials (hence outdated). Do you need to update this to include any other potentially exercisable options at the time of you spreading the comps? (just by comparing current share price and exercise price) Thank you so much for taking the time to respond to my questions! :) You have been a big help! Read More

Clarification on LIFO/FIFO adjustment & tax savings
1. Adjustment after tax (cell H54): formula = 2.4*0.6-4.9. you add 2.4*0.6 because you generate lower pretax income so you should be paying less tax hence you add back 2.4*0.6 as tax savings after adjusting back to LIFO (since you are converting all comps to LIFO standard for apple to apple comparis... 1. Adjustment after tax (cell H54): formula = 2.4*0.6-4.9. you add 2.4*0.6 because you generate lower pretax income so you should be paying less tax hence you add back 2.4*0.6 as tax savings after adjusting back to LIFO (since you are converting all comps to LIFO standard for apple to apple comparison). Is this correct? Read More

Question on adjustment of pre opening expense on diluted normalized EPS
Cell F87 of diluted normalized EPS $0.94 is after adjusting for pre-opening expense of $15,999. Since this not a one-off item and it was added back on the pre tax adjustment in cell F78, then the normalized diluted EPS is not $0.94 right? It should be: $0.94 + 15.999*0.6/491.717 = $0.95 (using dilu... Cell F87 of diluted normalized EPS $0.94 is after adjusting for pre-opening expense of $15,999. Since this not a one-off item and it was added back on the pre tax adjustment in cell F78, then the normalized diluted EPS is not $0.94 right? It should be: $0.94 + 15.999*0.6/491.717 = $0.95 (using diluted share count in 2005 Q2 and post tax) Read More

Questions on the slides (8 questions)
1. Do you always have to include cost of preferred equity in WACC? In which case you MUST include cost of preferred equity? 2. Since preferred equity is closer to debt, does that mean cost of debt < cost of preferred equity < cost of equity? How do you calculate the returns and valuation multiple... 1. Do you always have to include cost of preferred equity in WACC? In which case you MUST include cost of preferred equity? 2. Since preferred equity is closer to debt, does that mean cost of debt < cost of preferred equity < cost of equity? How do you calculate the returns and valuation multiple to preferred equity holders? Does this impact returns and valuation multiple of P/E for common equity holders if you have preferred equity in the equation? 3. Does this affect the FCFF calculation for DCF? I don’t think so right since it is capital structure neutral? 4. If you were to use preferred equity in WACC then how do you calculate FCFE in the case where preferred equity is used vs not used in WACC? 5. How do you calculate cost of preferred equity & where can you find whether it’s taxable from financial statements? 6. Capital charge in EVA: is there a variation where you include preferred equity? You just use the WACC you calculated above that includes preferred equity? 7. marginal tax rate: what if the company or its peers has these conditions (when you are levering and unlevering beta) and also when you are spreading comps a. Using tax credit hence they are paying tax close 0 in current year and prior years? b. If the company has tax breaks due to the industry it operates in hence all of its peers have low % tax eg <10%? c. I think some types of companies eg LLC etc have very low tax rate, what if a company owns several subsidiaries with such structures such that their income tax rate (income tax expense paid as % of pretax income) is much less than 35-40% standard corporate tax rate, for example <5% through the prior years? 8. Is there a difference between marginal tax rate in the lever/unlever of beta vs income tax rate on your P&L vs effective tax rate? When do you use each of them? Read More

Adjustments for non-recurring items to calculate adjusted EV/FCFF or other cashflow ratios
i. Does this mean you have to adjust for cashflow statement and balance sheets? Can you give an example for such adjustments for items that affects both cashflow statements and balance sheets? e.g. deferred tax impairments etc