Other income
Other income under revenue is different from other income below EBIT line right? ie the former does not have to be reclassified to below EBIT line?

Clarification on cost method and tax differences in the 10K
1. Adjustments – 1st one – page 2 of 10K: “Including a favorable fourth-quarter adjustment of $1 million related to taxes, the sale resulted in a pre-tax gain of $26 million and a loss of $7 million on an after- tax basis. The relatively high tax cost is largely due to the tax basis of the Com... 1. Adjustments – 1st one – page 2 of 10K: “Including a favorable fourth-quarter adjustment of $1 million related to taxes, the sale resulted in a pre-tax gain of $26 million and a loss of $7 million on an after- tax basis. The relatively high tax cost is largely due to the tax basis of the Company’s investment in Renner being lower than its book basis as a result of accounting for the investment under the cost method for tax purposes. Included in the pre- tax gain on the sale was $83 million of foreign currency translation losses that had accumulated since the Company acquired its controlling interest in Renner.” I am not questioning the adjustment but wanted to clarify, we covered reporting investing at cost before under accounting bootcamp course, how does this result in a difference between book tax and tax paid (tax basis is lower than book tax)? Read More

Questions on the slide (various aspects) - 6 questions
1. pro forma vs reported numbers: Why take pro forma instead of reported numbers? When you are projecting the consolidated company post M&A, which financials to use? 2. organic vs inorganic growth: When you are trying to project organic vs inorganic growth and % of growth in the combined company... 1. pro forma vs reported numbers: Why take pro forma instead of reported numbers? When you are projecting the consolidated company post M&A, which financials to use? 2. organic vs inorganic growth: When you are trying to project organic vs inorganic growth and % of growth in the combined company from acquisition vs from organic (acquiror), is it the right way to do this: use historical financials (3-5 years) of target & acquiror and going forward, except that going forward you include synergies? Is there a need to use pro forma 2004-2005 numbers from SHLD in this case and how do you use given pro forma numbers when carrying out this inorganic vs organic growth analysis? 3. Adjustments on pro forma questions: Gain from sale of business: a. $317m gain from sale of business that occurred at pretax level but was offset by MI expense post tax. This MI expense occurs post tax below net income right? All MI income / expense usually occurs after net income to common shareholders (so post tax), is this right? 4. Adjustments on pro forma questions: Bankruptcy ($40m expense on page 9/43 on top of PDF – is this expense equal to the gain that you will add after reversing?): a. I agree they are below EBIT but they are in between EBIT and earning before tax, so they are pretax. The slides state these numbers are post tax, how do you arrive at post tax conclusion? b. Is gain adjustment from bankruptcy $40m from page 21/43 on the cashflow statement equal to the bankruptcy expense $40m on page 9/43. This cashflow statement is from successor company meaning GAAP right (so post M&A consolidation and not pro forma)? 5. Adjustments on pro forma questions: other income adjustments ($21m gain created from $48m other income): a. I agree they are below EBIT but they are in between EBIT and earning before tax, so they are pretax. The slides state these numbers are post tax, how do you arrive at post tax conclusion? b. $23m vs $21m gain from asset sale (not sure which number to use): Where is $21m gain from? On page 33/43 It was stated $21m gain from other income from $45m cure payment to Kmart? However, on notes 12 page 32/43, gain on sale of investment in total is $23m instead of $21m. Which is the right number to use $23m or $21m gain? The total other income pro forma is $48m vs reported $38m and the breakdown of other income is only given $38m (which seem to be reported, instead of pro forma) so how do you know which gain from investment sale number to use out of the $48m since the breakdown of other income pro forma is not given? 6. Estimates for pro forma diluted EPS: you used 2 methods using pro forma net income before and after accounting changes. Whichever is the method, you always take the higher diluted EPS number to be conservative correct? Hence there is no preference for either method. Read More

Relationship between P/E and inverse of P/E (2 questions)
Hi! First, awesome videos! Follow up questions on multiples, esp for listed companies valuation when analysing a stock in a long short fund context: 1. Is inverse of P/E = earnings yield = cost of equity? I was looking through this link and it states that this statement is wrong ie inverse o... Hi! First, awesome videos! Follow up questions on multiples, esp for listed companies valuation when analysing a stock in a long short fund context: 1. Is inverse of P/E = earnings yield = cost of equity? I was looking through this link and it states that this statement is wrong ie inverse of P/E does not estimate the cost of equity to equity investors. Wanted to get your opinion if all these below in the link are practical application to real life valuation or these are just theories that are not applicable? Please see link: https://home.kpmg.com/jm/en/home/insights/2016/06/cost-of-equity--return-on-equity--p-e---what-do-these-mean-.html The article incorporates perpetuity growth method so inverse of P/E = Capitalisation multiple = 1/(Ke – g) Market value = Maintainable earnings x (1 + g) x 1/(Ke - g) Capitalisation multiple = (1+g)/(Ke – g) cost of equity = Kei ? [(1+g)/(P/E)] + g 2. Can you shed light on the relationship between cost of equity, required return to equity investors (uses market value so more useful to equity investors), ROE (more of using book value so less useful to an equity investor?). I am a little confused when using these when evaluating multiple and doing different valuation methods. There are a few literature that have differing views on the use in public market valuation. Read More

2005A EBIT
Hi, would you like us to use the 2005A EBIT numbers from the video (which for Kohl's, Sears, and Target seem to be the unadjusted EBIT numbers) or would you like us to use the ones that are automatically pulled by the links on the given template? Thank you for the assistance.