Asa 203

Front 1

Profitability for Equity

Back 1

GP/Sales, Op Profit/Sales, Pre-tax income/Sales, NI/Sales, GCF(after tax)/Sales

Front 2

Profitability for Invested Capital

Back 2

GP/Sales, Op Profit/Sales, EBIT/Sales, EBITDA/Sales, NOPAT/Sales

Front 3

AR Turnover

Back 3

Sales/AR

Front 4

Days Receivables

Back 4

365/AT Turnover

Front 5

Inventory Turnover

Back 5

COGS/Inventory

Front 6

Days Inventory

Back 6

365/Inventory Turnover

Front 7

Working Capital Turnover

Back 7

Revenue/NWC

Front 8

Net Fixed Asset Turnover

Back 8

Revenue/NFA

Front 9

Total Asset Turnover

Back 9

Revenue/Total Assets

Front 10

Invested Capital Turnover

Back 10

Revenue/Invested Capital

Front 11

Debt/Equity

Back 11

Total Liabilities/Equity

Front 12

Debt to Invested Capital

Back 12

Interest-bearing debt/invested capital

Front 13

Fixed Assets to Equity

Back 13

Net Fixed Assets/Equity

Front 14

Equity to Total Assets

Back 14

Equity/Total Assets

Front 15

Trade Payables Turnover

Back 15

COGS/Trade Payables

Front 16

Days of Trade Payables

Back 16

365/Payables Turnover Ratio

Front 17

Times Interest Earned

Back 17

EBIT/Interest Expense

Front 18

Cash Flow Debt Coverage

Back 18

(NI+D&A)/Debt Current Maturities

Front 19

Quick Ratio

Back 19

(Cash & Equivalents + A/R)/Current Liabilities

Front 20

Net Working Capital Turnover

Back 20

Sales/NWC

Front 21

ROE

Back 21

Net Income/Equity

Front 22

DuPont ROE

Back 22

(NI/Sales)x(Sales/Assets)x(Assets/Equity)

Front 23

Return on Invested Capital

Back 23

EBIT/Invested Capital

Front 24

DuPont ROIC

Back 24

(EBIT/Sales)x(Sales/Assets)x(Assets/IC)

Front 25

Return on Assets

Back 25

EBIT/Total Assets or (EBIT/Sales)x(Sales/Assets)

Front 26

Plowback ratio

Back 26

Change in Retained Earnings/Net Income

Front 27

Equity Growth Ratio

Back 27

ROE x Plowback Ratio

Front 28

Porter's Five Forces

Back 28

Threat of New Entrants, Threat of Substitutes, Bargaining power of buyers, Bargaining power of sellers, rivalry among existing firms

Front 29

Never use the asset approach when valuing ___.

Back 29

a minority equity interest

Front 30

The cost of reproducing a new replica of a property with the same or very similar materials based on current prices as of a specific date.

Back 30

Reproduction Cost New

Front 31

The cost of a new property having the nearest equivalent utility as the property being appraised.

Back 31

Replacement Cost New

Front 32

Replacement cost new less depreciation from age, wear and tear, or obsolescense.

Back 32

Depreciated Replacement Cost New

Front 33

The fair market value of an asset, including installation costs and the contribution of the item to the operating facility.

Back 33

Fair Market Value in Continued Use (or Value in Use)

Front 34

The expected gross proceeds from the sale of the asset held under orderly sales conditions and given a reasonable period of time in which to find purchasers.

Back 34

Orderly Liquidation Value

Front 35

The expected gross proceeds from the sale of the asset that could be realized at a properly advertised and conducted public auction held under forced sale conditions and with a sense of immediacy.

Back 35

Forced Liquidation Value

Front 36

Equity Cash Flow

Back 36

Revenue
-COGS
-Operating Expese
=EBIT
-Interest Expense
=Pre-Tax Income
-Taxes
=Net Income
+Depreciation
=Gross Cash Flow
+/- Change in Working Capital
-Capital Expenditures
+/- Change in Debt
=Net Equity Cash Flow

Front 37

Invested Capital Cash Flow

Back 37

Revenue
-COGS
-Operating Expenses
=EBIT
-Taxes
=NOPAT
+Depreciation
=Gross Cash Flow
+Change in Working Capital
-Capital Expenditures
=Net Invested Capital Cash Flow

Front 38

Build-Up Approach

Back 38

RFR
+Equity Risk Premium
+Size Premium
+Company Specific Risk
=Discount Rate

Front 39

CAPM

Back 39

RFR + beta(Return on Market-RFR) + Company Specific Risk

Front 40

WACC uses...

Back 40

market value of equity and debt...NOT book value

Front 41

Debt/Equity

Back 41

Total Liabilities/Equity

Front 42

Debt to Invested Capital

Back 42

Interest-bearing debt/invested capital

Front 43

Fixed Assets to Equity

Back 43

Net Fixed Assets/Equity

Front 44

Equity to Total Assets

Back 44

Equity/Total Assets

Front 45

Trade Payables Turnover

Back 45

COGS/Trade Payables

Front 46

Days of Trade Payables

Back 46

365/Payables Turnover Ratio

Front 47

Times Interest Earned

Back 47

EBIT/Interest Expense

Front 48

Cash Flow Debt Coverage

Back 48

(NI+D&A)/Debt Current Maturities

Front 49

Quick Ratio

Back 49

(Cash & Equivalents + A/R)/Current Liabilities

Front 50

Net Working Capital Turnover

Back 50

Sales/NWC

Front 51

Strengths of Market Approach

Back 51

-Easy to get data
-Easy to understand and apply
-Includes all assets
-Does not rely on forecasts
-Generally thought to be objective and reliable
-Incorporates current market conditions

Front 52

Weaknesses of Market Approach

Back 52

-Requires comparable companies
-Can't be used for a variety of individual assets
-Hidden growth assumptions
-Often reflect synergies

Front 53

Five Basic Principles Underlying the Market Approach

Back 53

-Comparability
-Availability
-Timeliness
-Transparency
-Efficiency

Front 54

Comparability as it relates to the market approach

Back 54

-Industry
-Size
-Growth
-Business Risk
-Financial Risk

Front 55

Nine Steps to the Market Approach

Back 55

1. Choose comps
2. Normalize subject and comps
3. Calculate multiples
4. Select Multiples
5. Compare Company to Comps
6. Adjust Multiples
7. Apply Multiples
8. Reconcile
9. Discounts/Premiums

Front 56

Basic Formula of Multiple

Back 56

(Value/Benefit)xBenefit

Front 57

MVIC or MVEQ - Sales

Back 57

MVIC

Front 58

MVIC or MVEQ - Gross Profit

Back 58

MVIC

Front 59

MVIC or MVEQ - EBITDA

Back 59

MVIC

Front 60

MVIC or MVEQ - EBIT

Back 60

MVIC

Front 61

MVIC or MVEQ - NOPAT

Back 61

MVIC

Front 62

MVIC or MVEQ - Discretionary Earnings

Back 62

MVIC

Front 63

MVIC or MVEQ - BVIC

Back 63

MVIC

Front 64

MVIC or MVEQ - Total Assets

Back 64

MVIC

Front 65

MVIC or MVEQ - Tangible BVIC

Back 65

MVIC

Front 66

MVIC or MVEQ - Beds/Clicks/Rooms/Miles

Back 66

MVIC

Front 67

MVIC or MVEQ - Pretax Income

Back 67

MVEQ

Front 68

MVIC or MVEQ - Net Income

Back 68

MVEQ

Front 69

MVIC or MVEQ - Gross Cash Flow

Back 69

MVEQ

Front 70

MVIC or MVEQ - Book Value of Equity

Back 70

MVEQ

Front 71

Coefficient of Variation

Back 71

SD/Mean

Front 72

Any multiple or divisor used to convert anticipated economic benefits of a single period into value.

Back 72

Capitalization Factor

Front 73

Any divisor used to convert anticipated economic benefits of a single period into value.

Back 73

Capitalization Rate

Front 74

The share price of a publicly traded stock multiplied by the number of shares outstanding.

Back 74

MVEQ

Front 75

The market capitalization of equity plus the market value of the debt component of invested capital.

Back 75

MVIC

Front 76

SGLPTL

Back 76

Size, Growth, Liquidity, Profitability, Turnover, Leverage

Front 77

GPC - Primary selection criteria

Back 77

-Active market
-Similarity of business/industry
-Size
-Growth
-Financial Performance

Front 78

GPC Normalizing Adjustments

Back 78

Comparability - Accounting Translation Adjustments
Predictability - Extraordinary/Nonrecurring Adjustments
Core Operations - Nonessential or Excess Asset Adjustments

Front 79

IF asked to adjust YE invetory from LIFO to FIFO

Back 79

Ending LIFO Inventory + LIFO Reserve

Front 80

If asked to calculate the adjustment to retained earnings (tax affected)

Back 80

YE LIFO Reserve x (1-tax rate)

Front 81

If asked to calculate the impact on net income of an adjustment from LIFO to FIFO

Back 81

Change in LIFO Reserve x (1-tax rate)

Front 82

Predictability - Extraordinary/Nonrecurring Adjustments

Back 82

-Discontinued Operations
-Restructuring costs
-Historical goodwill amortization

Front 83

Regress Price/BV of Equity against

Back 83

ROE

Front 84

Regress Price/Sales against

Back 84

ROS

Front 85

Adjusting the market multiple for size risk

Back 85

K(gpc) + [K size of subject - K size of GPC] - G(gpc)

Front 86

Shareholder level discounts

Back 86

-DLOC
-DLOM
-Voting vs Nonvoting
-Blockage

Front 87

Equity Level Discounts

Back 87

-Trapped in Capital Gains
-Key person
-Contingent Liabilities
-Environmental
-Litigation
-Portfolio
-Concentration of supplier base

Front 88

SDE (BizComps)

Back 88

EBITDA + Owner's Comp + Perks

Front 89

SDE (IBA)

Back 89

EBIT + Owner's Comp + Perks

Front 90

Disadvantages of Rules of Thumb

Back 90

-Based on averages
-No accesss to company data
-No access to terms

Front 91

Level of Value - M&A Method

Back 91

Control

Front 92

Level of Control - Asset Accumulation Method

Back 92

Control

Front 93

Level of Control - Excess Earnings Method

Back 93

Control

Front 94

Level of Control - Income Method

Back 94

Control Cash Flows = Control
Minority Cash Flows = Minority, Marketable

Front 95

Level of Control - GPC

Back 95

Control Cash Flows = Control
Minority Cash Flows = Minority, Marketable

Front 96

Minority Discount =

Back 96

1-(1/1+Control Premium)

Front 97

Rationale for DLOM for Controlling Interests

Back 97

-Uncertain time horizon
-Cost to prepare and execute sale
-Risk concering price
-Noncash and deferred transaction proceeds
-Inability to hypothecate

Front 98

Steps in the Reconciliation Process

Back 98

-Reread EL
-Analyst review
-Check indications of value reflect same level of value
-Reconcile market and incoem value indications