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Package 2: Core Fundamental Concepts

Package 2: Core Fundamental Concepts

Our core fundamental concepts in finance involve the basic financial modeling and valuation techniques that introduce model building best practices as well as getting used to working efficiently in Excel. After understanding the basic fundamental concepts, the most important building blocks of modeling are introduced as we begin to thoroughly analyze financial statements and their implications. We introduce the underpinnings of fundamental valuation (i.e. DCF analysis) and relative valuation (comps & multiples).

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Last 10 posts

valuation for Balance Sheet based company like banks and insurance
how is the valuation calcualated for banks and insurance company

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by Maricor D.

added 3 years ago

Terminal EBITDA multiple
Why is it inappropriate to assume terminal multiple expansion or contraction relative to the current year?

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by Daniel O.

added 5 years ago

How does non-controlling interest affect the income statement model & calculation of EPS?
Hi, I understand that EPS is the net income attributed to ordinary shareholders divided by the weighted average number of ordinary shares. So EPS = (Net Income - Non-controlling interest) / Weighted average number of ordinary shares? Do we also deduct the non-controlling interest from the Operati... Read More

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by Yong Heng T.

added 6 years ago

redeemable vs non redeemable non controlling interest (4 questions)
1. Classification: am I right to say that the redeemable portion is temporary equity hence on the > statement of equity: the net income number that shows up is after subtracting the temporary equity portion? > balance sheet: only non-redeemable portion of non controlling interest shows up under... 1. Classification: am I right to say that the redeemable portion is temporary equity hence on the > statement of equity: the net income number that shows up is after subtracting the temporary equity portion? > balance sheet: only non-redeemable portion of non controlling interest shows up under shareholder's equity? where does the redeemable portion show up in balance sheet? 2. When calculating TEV: do you add the whole non controlling interest (both redeemable and non-redeemable)? 3. In the case of a non controlling stakeholder that holds a redeemable stake, can you explain how it flows through the financial statements in the case when he redeems? Say his stake is worth $10. If he redeems this over 5 year period say $2 per year, then in a. Year 0 - reclassify redeemable non controlling interest into liability: this $10 becomes amount owed to the holder under liabilities ($2 under account payable as it is payable in a year) whereas remaining $8 is under other long term liabilities (payable in future after 1 year lapsed). On cashflow statement, you have increase in payable of $2 so additional cash under CFO so net change is +2. no change in CFI and CFF. On BS you have on the current liability side +2, other long term liability +8, and under retained earnings -10 so no change in asset. Is this correct? b. Year 1 - you start expensing $2 (assume stays the same but this could have fluctuated year on year depending on the performance of the firm that minority shareholder has a stake in) P&L: -2 under interest expense or other expense so after tax of 40%, net income is -$1.2 CFS: under CFO, -1.2, and since payable is down 2 this year so net CFO cash is -3.2 ,under CFI and CFF - no change. Balance sheet: asset side: cash -3.2 and liability side 10-2=8, equity side =-1.2 (from net income), so asset side is -3.2 and liability+equity = 8-1.2 = 6.8 QUESTION: this is not balancing, what is wrong here? 4. what is the risk with a firm with a huge noncontrolling interest as part of the net income eg 50% of net income from from noncontrolling interest in general (whether there is redemption or not)? Read More

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by Elvina J.

added 6 years ago

"Slow growth, mature cash cow"
Why do we classify the company as "slow growth" when we had double digit growth during the projection period?

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by Ronald H.

added 7 years ago

Diluted earnings per share
I'm confused on why you added 1080 to net income in 2002 to get diluted EPS but didn't add anything to net income in 2003 to get diluted EPS. From my understanding, in Part 2, you said that the company had to pay $1080 worth of interest to the convertible subordinate shareholders if they did not con... Read More

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by Lucy R.

added 7 years ago

Relevant Multiple Range slide 38
Hi, I understand that picking the relevant multiple range is subjective. On slide 38, the range for LTM EBITDA is 4.5x-50x and the LTM EPS multiple is 8x-9. Can you please explain your reasoning of why you choose those numbers? Like I said, I understand that it is a subjective process and that there... Read More

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by Lucy R.

added 7 years ago

Shortcut #1
Hi, when I do alt = I do not get the sum shortcut. I think this is because I am using a mac. Do you know what command I am supposed to use instead?

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by Lucy R.

added 7 years ago

Minority Interest
Why is this thought of as Debt? Wouldn't it be more accurate to think about minority interest as another form of equity? They participate in ownership of the assets on the consolidated balance sheet, as well as the earnings on the consolidated income statement. It's more of an ownership, so they par... Read More

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by John L.

added 7 years ago

Five questions (merger premiums, capex, leveraged beta, etc.)
1. Do merger of equals usually have premiums paid close to zero? 2. Page 41, to calculate Unlevered Free Cash Flow, it is used net capital expenditure, but to calculate Unlevered Free Cash Flow in the Hilb, Rogal & Hamilton case, it is used capital expenditure instead. Why? 3. When do you use... Read More

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by WST Guest A.

added 7 years ago