During many consulting projects you will have to analyze financial statements (balance sheet, income statement, cash flows) and draw conclusion about specific company. This is especially true during due diligence, strategic projects and turn-arounds. Financial analyses require relatively good understanding of finance and accounting. Business Analysts and Management Consultants that did not study Finance or Business tend to have some problems with navigating this area. This course will help you overcome this problem. Those of you who have finished Business School or Economics will find here a great refresher with a lot of practical tips how to do certain analysis during a consulting project.
This course will help you drastically improve your knowledge and skills in finance and accounting. It is designed for people who are or want to become management consultants, business. In the course you will learn 5 main things:
1. How to read financial statements such as a balance sheet, an income (profit & loss) statement, cash flows
2. How to draw conclusions from financial statements
3. Main principles of accounting
4. How to analyze financial indicators
5. How to estimate the value of the firm / do valuation
I will NOT teach you everything about finance & accounting because it is simply not efficient (and frankly you don’t need it). This course is organized around 80/20 rule and I want to teach you the most useful (from business analyst / consultant perspective) things that will enable you to understand the financial data and analyze them.
2. 2
In business you have to make a lot of important decisions
During consulting projects or at a managerial level you will need to be
able to analyze financial data and to draw conclusions out of it.
3. 3
In business you have to make a lot of important decisions
Unfortunately, the financial data may look extremely confusing to you at
the beginning due to lack of consistence in naming and weird logic used
4. 4
In business you have to make a lot of important decisions
In this presentation will teach you the most important things about accounting &
finance you need to know to work without any problems during consulting projects
5. 5
We will cover all the essential things that you need to know to work well during
consulting
Understanding the 3 financial
statements Financial indicators Modeling P&L
Case studies & exercises
Introduction to Valuation
6. 6
This presentation will help you master the most
important things in finance & accounting on the
level of top management consultants
7. 7
Finance & Accounting for Management
Consultants and Analysts
$190
$19
What you will see in this presentation is a part of my online course where you
can find case studies showing analyses along with detailed calculations in Excel
Click here to check my course
9. 9
In business you have to make a lot of important decisions
In this course I will teach you the most important things about accounting & finance
you need to know to work without any problems during consulting projects
10. 10
Example of modeling
P&L – FMCG business
model
Balance sheet
statement
Profit & Loss / Income
statement
Analysis of financial
indicators
Introduction to
valuation & case study
Cash flow statement
13. 13
In this section we will discuss the following things
What is P&L?
How we can divide
costs?
Different type of
costs
Gross Profit
Examples of real P&L
of famous firms
Why Depreciation is
a weird cost
15. 15
There are 3 financial statements that you have to look at when
analyzing the firm
Profit & Loss /
Income Statement
Balance Sheet Cash flow
Shows how much money you
have earned and did you
make a profit or a loss?
Shows how you did it, what
where the revenue and how
much you had to spend in
terms of costs to generate
them?
Shows what you have / what
you need to have a
legitimate business
Shows you also where you
got the money from to buy
the things you have
(shareholders, banks,
suppliers, other borrowers
etc.)
Shows how much money the
firm has actually generated
and what has consumed the
cash on 3 levels
You can see what the firm
spends the cash on:
investment, paying off debts,
buying back shares or maybe
paying of dividends
Cash is divided into 3
streams: Operating CF,
Investing CF and Financing
CF
17. 17
As we said previously there are 3 financial statements that you have to look at when
analyzing the firm
Profit & Loss /
Income Statement
Balance Sheet Cash flow
18. 18
In this section we will discuss the P&L
Profit & Loss /
Income Statement
Balance Sheet Cash flow
19. 19
We have previously said that there are 2 main goals of P&L / Income
statements
How much you have
earned / lost?
How you did it?
20. 20
So we can say that the purpose of the P&L is to show you how you got from the
Revenue to the Net Profit.
Revenue &
Income
Costs =
Net Profit /
Income
Corporate
Income Taxes
--
21. 21
To understand better the business we will divide revenue and costs into more
granular categories in the next lectures
Revenue &
Income
Costs =
Net Profit /
Income
Corporate
Income Taxes
--
23. 23
As we said the P&L consists of the following elements. Let’s get deeper into Revenue
Revenue &
Income
Costs =
Net Profit /
Income
Corporate
Taxes
--
24. 24
There are 3 ways in which you can get Revenue / incomes
You can sell your own
products or goods from other
firms
You can get interest from
money you have or get other
income from financial
activities
You can get other operating
income i.e. higher value of
your assets, grants, penalties
25. 25
That is why the revenue can be presented as 3 separate streams
Revenue &
Income
= Revenue + Interest income
Other operating
income
+
26. 26
Let’s also look at the alternative names for those components of Revenue
Revenue &
Income
= Revenue + Interest income
Other operating
revenue
+
Net Sales
Turnover
Finance Income
Financial Income
Other operating
income
28. 28
As we said the P&L consists of the following elements. Let’s get deeper into
Costs
Revenue &
Income
Costs =
Net Profit /
Income
Corporate
Income Tax (CIT)
--
29. 29
There are 3 main components of costs
Operating Expenses
Interest paid as well as other
financial costs i.e. gains due
to exchange rate differences
You can get other operating
costs i.e. Lower valuation of
your assets, penalties paid
30. 30
The costs we can divide into 3 main groups
Costs =
Operating
Expenses
+
Interest
expenses
Other operating
expenses
+
31. 31
Let’s also look at the alternative names for those components of
Costs
Opex
Costs and
expenses
Finance expense
Financial costs
Other operating
costs
Costs =
Operating
Expenses
+
Interest
expenses
Other operating
expenses
+
Financial
expenses
Operating costs
33. 33
Just as reminder this is how the general income statements looks like
Revenue &
Income
Costs =
Net Profit /
Income
Corporate
Income Tax (CIT)
--
34. 34
Since we can present revenue in the form of 3 main components…..
Revenue &
Income
= Revenue + Interest income
Other operating
income
+
35. 35
….corresponding to 3 elements in the costs. It means that we can get
everything together in the P&L / income statements
Costs =
Operating
Expenses
+
Interest
expenses
Other operating
expenses
+
36. 36
Now let’s get everything together and see different levels of Profit / Income
Revenue
Operating
Expenses
= Net Profit
Corporate
Tax (CIT)
-
Interest
income
+
Interest
expense
-
Other
operating
expenses
-
Other
operating
revenue
+ -
Revenue
Operating
Expenses
Other
operating
revenue
Other
operating
expenses
Interest
income
= Net Profit-
Interest
expense
Corporate
Tax (CIT)
+ + ---
Regular operating profit
(loss)
Other operating profit
(loss)
Interest expense net /
Profit from financial
activities
+ + = Net Profit-
Corporate
Tax (CIT)
Operating profit (loss)
Interest expense net /
Profit from financial
activities
+ = Net Profit-
Corporate
Tax (CIT)
Profit (loss) before income tax = Net Profit-
Corporate
Tax (CIT)
37. 37
Now let’s get everything together and see different levels of Profit / Income
Revenue
Operating
Expenses
=
Net
Income
Corporate
Tax (CIT)
-
Interest
income
+
Interest
expense
-
Other
operating
expenses
-
Other
operating
revenue
+ -
Revenue
Operating
Expenses
Other
operating
revenue
Other
operating
expenses
Interest
income
=
Net
Income
-
Interest
expense
Corporate
Tax (CIT)
+ + ---
Regular operating
income (loss)
Other operating income
(loss)
Interest expense net /
Profit from financial
activities
+ + =
Net
Income-
Corporate
Tax (CIT)
Operating income (loss)
Interest expense net /
Profit from financial
activities
+ =
Net
Income-
Corporate
Tax (CIT)
Income (loss) before income tax =
Net
Income-
Corporate
Tax (CIT)
38. 38
Now let’s get everything together and see different levels of Profit / Income
Revenue
Operating
Expenses
=
Net Profit
/ Income
Corporate
Tax (CIT)
-
Interest
income
+
Interest
expense
-
Other
operating
expenses
-
Other
operating
revenue
+ -
Revenue
Operating
Expenses
Other
operating
revenue
Other
operating
expenses
Interest
income
=
Net Profit
/ Income
-
Interest
expense
Corporate
Tax (CIT)
+ + ---
Regular operating profit /
income (loss)
Other operating profit /
income (loss)
Interest expense net /
Profit from financial
activities
+ + =
Net Profit
/ Income-
Corporate
Tax (CIT)
Operating profit / income (loss)
Interest expense net /
Profit from financial
activities
+ =
Net Profit
/ Income-
Corporate
Tax (CIT)
Income / Profit (loss) before income tax =
Net Profit
/ Income-
Corporate
Tax (CIT)
40. 40
Just as a reminder we had the following levels of profits
Revenue
Operating
Expenses
=
Net Profit
/ Income
Corporate
Tax (CIT)
-
Interest
income
+
Interest
expense
-
Other
operating
expenses
-
Other
operating
revenue
+ -
Revenue
Operating
Expenses
Other
operating
revenue
Other
operating
expenses
Interest
income
=
Net Profit
/ Income
-
Interest
expense
Corporate
Tax (CIT)
+ + ---
Regular operating profit /
income (loss)
Other operating profit /
income (loss)
Interest expense net /
Profit from financial
activities
+ + =
Net Profit
/ Income-
Corporate
Tax (CIT)
Operating profit / income (loss)
Interest expense net /
Profit from financial
activities
+ =
Net Profit
/ Income-
Corporate
Tax (CIT)
Income / Profit before income tax =
Net Profit
/ Income-
Corporate
Tax (CIT)
41. 41
Below some other naming of Operating income
Operating income (loss)
Earnings before Interest &
Taxes (EBIT)
EBIT
Income from operations
Operating profit (loss)
42. 42
Let’s have a look at alternative names for Income before income tax
Income (loss) before income
taxes
Pre-tax profit (loss)
Earnings (loss) before
income taxes
Profit (loss) before income
taxes
EBT
43. 43
Below some other naming of Interest expense net
Interest expense net
Financial expenses, net
Financial income and
expenses - net
Interest income, net
45. 45
There are 2 general ways in which you can divide the operational expenses / costs to
present them to the Board of Management & shareholders
By type of costs By stages
In this approach you look
only at the type of the
cost. You don’t care where
it occurs.
There are 8 main
categories of costs
In this approach the type
of costs does not matter
You divide the costs by
stages at which they
occurred / were created
46. 46
Let’s start with the division of operational expenses by type
Operating Expenses
Labor / Payroll costs
External Services
Materials, Energy &
Utilities
Depreciation &
Amortization
Cost of goods and
materials sold
Taxes & Charges
Other costs
Social security & other
employee benefits
48. 48
As we said there are 2 ways in which you can divide the operational expenses. Let’s
look how it looks if we do it by stages
By type of costs By stages
In this approach you look
only at what type of cost
There are 8 main
categories of costs
In this approach the type
of costs does not matter
You divide the costs by
stages at which they
occurred / were created
49. 49
Let’s see how we divide operational expenses by stages
Operating Expenses
Selling, general,
administrative and
other expenses
Cost of Goods Sold
(COGS)
Selling, general and
administrative
expenses (SG&A)
Cost of Goods Sold
(COGS)
Other costs
Selling & Marketing
costs
Cost of Goods Sold
(COGS)
Other costs
R&D costs
General &
administrative costs
50. 50
In some cases (i.e. Retail. Operating Expenses don’t include COGS)
Costs & Expenses
Operating Expenses
Cost of Goods Sold
(COGS)
52. 52
COGS are important part of Operating Expenses
Operating Expenses
Selling, general,
administrative and
other expenses
Cost of Goods Sold
(COGS)
Selling, general and
administrative
expenses SG&A
Cost of Goods Sold
(COGS)
Other costs
Selling & Marketing
costs
Cost of Goods Sold
(COGS)
Other costs
R&D costs
General &
administrative costs
53. 53
Below some other naming of Cost of Goods Sold that are used in reports
Cost of Goods Sold (COGS)
Cost of Sales
Cost of Products Sold
Cost of Revenue
COGS
55. 55
Just as a reminder we had the following levels of profits. Quite often firms
introduce an intermediate level before the Operational Income
Revenue
Operating
Expenses
=
Net Profit
/ Income
Corporate
Tax (CIT)
-
Interest
income
+
Interest
expense
-
Other
operating
expenses
-
Other
operating
revenue
+ -
Revenue
Operating
Expenses
Other
operating
revenue
Other
operating
expenses
Interest
income
=
Net Profit
/ Income
-
Interest
expense
Corporate
Tax (CIT)
+ + ---
Operating profit / income (loss)
Interest expense net /
Profit from financial
activities
+ =
Net Profit
/ Income-
Corporate
Tax (CIT)
Income / Profit before income tax =
Net Profit
/ Income-
Corporate
Tax (CIT)
56. 56
If we use the division of costs by stages we would have the following results.
Revenue
Selling, general and
administrative expenses (SG&A)
Other costs
Operating Income (loss) / EBIT
COGS-
-
-
=
57. 57
If we use the division of costs by stages we would have the following results. Gross
Profit is a intermediate step between Revenue and Operational Income
Revenue
Selling, general and
administrative expenses (SG&A)
Other costs
Operating Income (loss) / EBIT
COGS-
-
-
=
Gross Profit-
58. 58
If we squeeze Gross Margin after COGS we get the following result
Revenue
Selling, general and
administrative expenses (SG&A)
Other costs
Operating Income (loss) / EBIT
COGS-
-
-
=
Gross Profit=
59. 59
When it comes to alternative names Gross Profit is often called Gross Margin
Gross Profit
GM
Gross Margin
61. 61
Some firms want to have additional intermediate step between Gross Profit and
Operating Income
Revenue
Selling & Marketing costs
Other costs
Operating Income (loss) / EBIT
COGS-
-
-
=
Gross Profit / Margin=
General & administrative costs
including R&D costs
-
Net Margin-
62. 62
If we squeeze Net Margin after Selling & Marketing costs we would get the following
result
Revenue
Selling & Marketing costs
Other costs
Operating Income (loss) / EBIT
COGS-
-
-
=
Gross Profit / Margin=
General & administrative costs
including R&D costs
-
Net Margin=
64. 64
Depreciation is a weird cost because it is not a cash cost and its size depends on the
assumed accounting policy. It is crucial also for determining the value of non-current assets
65. 65
Depreciation is trying to estimate to what extent a fixed asset was used in a specific
period, what part of it’s value was transferred on products produced / sold?
Depreciation
Usage of a non-current asset that
occurred in a specific period
≈
66. 66
Let’s have a look how annual Depreciation can be calculated using straight line
deprecation
Asset Purchase price
Annual Deprecation =
Lifetime of usage in
years
-
Salvage / Scrap value at
the end of the usage
Salvage / Scrap value at
the end of the usage
= 0
Asset Purchase price
Annual Deprecation =
Lifetime of usage in
years
=
Asset Purchase
price
x
1
Lifetime of usage in
years
67. 67
Let’s have a look how annual Depreciation can be calculated using straight line
deprecation
Asset Purchase price
Annual Deprecation =
Lifetime of usage in
years
=
Asset Purchase
price
x
1
Lifetime of usage in
years
Depreciation rate =
1
Lifetime of usage in
years
Asset Purchase price
Annual Deprecation =
Lifetime of usage in
years
=
Asset Purchase
price
x
Depreciation
rate
69. 69
Assets that can be depreciated should be treated in the following manner
Buy the fixed asset
Decide how many
years you will use it
Pick the depreciation
/ amortization
method
Calculate the
depreciation rate and
deprecation for the
specific period
Calculate the value of
the asset after
depreciation for the
given period
70. 70
Assets that can be depreciated should be treated in the following manner
Buy the fixed asset
Decide how many
years you will use it
Pick the depreciation
/ amortization
method
Calculate the
depreciation rate and
deprecation for the
specific period
Calculate the value of
the asset after
depreciation for the
given period
71. 71
Let’s calculate the depreciation for a truck we have just bought
The truck was purchased
for USD 20 K
It will be used for 10
years
We will use the straight-
line depreciation
We assume that at the
end of the 10 years that
track will be worth 0
Buy the fixed asset
Decide how many
years you will use it
Pick the depreciation
/ amortization
method
Calculate the
depreciation rate and
deprecation for the
specific period
Calculate the value of
the asset after
depreciation for the
given period
72. 72
Let’s have a look how annual Depreciation can be calculated using straight
line deprecation
20 K
Truck Annual
Deprecation
=
10
=
Asset Purchase price
Annual Deprecation =
Lifetime of usage in
years
=
Asset Purchase
price
x
Depreciation
rate
2 K
Truck Annual
Deprecation
= 20 K x 10% = 2 K
73. 73
Assets that can be depreciated should be treated in the following manner
The truck was purchased
for USD 20 K
It will be used for 10
years
We will use the straight-
line depreciation
We assume that at the
end of the 10 years that
track will be worth 0
Since we use the truck
for 10 years and the truck
will be worth 0 at the end
it means that every year
that truck will “lose” 10%
of its value
This means that we
calculate the annual
deprecation using the
following formula:
Depreciation = Value at
purchase x 10%
In our case it will be USD
20 K x 10% = USD 2 K
We use the following
formula for calculating
the value: Value at the
end of the year = Value
at the beginning of the
year - Deprecation
At then end of the Year 1
the truck will be worth =
20 K – 2 K = 18 K
Buy the fixed asset
Decide how many
years you will use it
Pick the depreciation
/ amortization
method
Calculate the
depreciation rate and
deprecation for the
specific period
Calculate the value of
the asset after
depreciation for the
given period
74. 74
Remember that when it comes to assets the problem is that they have 3 different
components that you have to track. On top of that every asset has to be tracked
separately
Depreciation
Gross book value
(Cost of the Asset)
Net book value
Sum of all
(Accumulated)
Depreciation
Gross book value
(Cost of the Asset)
Net book value=-
75. 75
Don’t mistake the Net book value of the asset with its market value, which
may be much bigger or much smaller
Net book value Market value≠
77. 77
Let’s imagine that you are supposed to calculate the depreciation &
amortization for a firm that does hand-made clay products
78. 78
A few information about the firm
They produce 4 groups of
products
They will depreciate assets
divided into 5 groups
For every group there is a
different depreciation rate
At the same time they do
investments into assets
79. 79
When it comes to assets the problem is that they have 3 different
components that you have to track. On top of that every asset has to be
tracked separately
DepreciationGross book value Net book value
Sum of all
Depreciation
Gross book value Net book value=-
80. 80
When it comes to assets the problem is that they have 3 different
components that you have to track. On top of that every asset has to be
tracked separately
CAPEX
FA Intangibles
FA Machinery
FA Transp eqmt
FA Other
FA Summary
P&L
BS
FA Buildings
Depreciation
Net book value
81. 81
Assumptions on fixed assets and depreciation
Depreciation
and
amortization
rates
Intangibles – 20%
Buildings – 2,5%
Equipment and Machinery - 10%
Transportation – 20%
Others – 20%
The Company will do mainly replacement investment equal to depreciation from
previous year
The new investment should be assumed to come into use in the middle of next year.
In 2018 the company plans to invest PLN 2 M in equipment and machinery
Investment
policy
85. 85
Let’s start with the definition of EBITDA
EBITDA
Earnings Before Interest Taxes, Deprecation &
Amortization
=
86. 86
We calculate it by adding back the Depreciation & Amortization
Operating Profit
EBIT
Depreciation &
Amortization
= EBITDA+
87. 87
Why we do it? As we have discussed Depreciation is one of the Operating Costs
Operating Expenses
Labor / Payroll costs
External Services
Materials, Energy &
Utilities
Depreciation &
Amortization
Cost of goods and
materials sold
Taxes & Charges
Other costs
Social security & other
employee benefits
88. 88
The problem with the Depreciation & Amortization is that it is not a cash
cost
Depreciation &
Amortization
Cash costs≠
89. 89
That is why we quite often bring back the Depreciation & Amortization and calculate
on the bases of that EBITDA
Revenue
Selling, general and
administrative expenses (SG&A)
Other costs
Operating Income (loss) / EBIT
COGS-
-
-
=
Gross Profit / Margin=
Depreciation & Amortization+
Earnings Before Interest, Taxes,
Depreciation & Amortization (EBITDA)
=
91. 91
Just as reminder the Depreciation & Amortization are not cash costs
Depreciation &
Amortization
Cash costs≠
92. 92
Therefore, we can say that EBITDA is an estimation of Operating Profit if we take
into account only cash operating costs
Operating Profit
EBIT
Depreciation &
Amortization
= EBITDA+
93. 93
There are 3 main reasons why managers, investors, analysts look at
EBITDA
You want a Profit
that is impacted by
cash costs only
It is a good proxy for
Cash generation
Eliminates the effect of the
biggest non-cash expense –
the Depreciation &
Amortization
Is not influenced by the
capital structure
It shows you roughly how
much cash can firm
generates from Operations,
provided the company does
not grow in revenues or the
growth does not require a lot
of working capital
It shows you roughly how
much cash can company
generate for investors
(owners & banks) if big
Capex is not required
Used widely for
Valuation
EBITDA is not influenced by
the assumed policy for
depreciation & amortization
EBITDA is a proxy of
capability to generate Cash
EBITDA multiplier used in
many industries to valuate
businesses
94. 94
Finance & Accounting for Management
Consultants and Analysts
$190
$19
For more details and content check my online course where you can find case
studies showing analyses along with detailed calculations in Excel
Click here to check my course
97. 97
As we said previously there are 3 financial statements that you have to look at when
analyzing the firm
Profit & Loss /
Income Statement
Balance Sheet Cash flow
98. 98
In this section we will discuss the Balance Sheet
Profit & Loss /
Income Statement
Balance Sheet Cash flow
99. 99
In this section we will discuss the following things
What is Balance
Sheet
How Balance Sheet is
organized
Selected Items of
Balance Sheet
Examples of Balance
Sheets of famous
firms
Exercises / Case
study
101. 101
There are 3 financial statements that you have to look at when
analyzing the firm
Profit & Loss /
Income Statement
Balance Sheet Cash flow
Shows what you have / what
you need to have a
legitimate business
Shows you also where you
got the money from to buy
the things you have
(shareholders, banks,
suppliers, other borrowers
etc.)
102. 102
The balance sheet has 2 sides. The left one - Assets tells you what you have. The
right one - Liabilities & Equity tells you where you got your money from
Assets Liabilities & Equity
103. 103
You have to remember 1 very important rule about the Total Assets and
Total Liabilities & Equity
Total Assets
Total Liabilities &
Equity
=
105. 105
Let’s discussed the components of both sides of balance sheet
Assets Liabilities & Equity
106. 106
Assets we divide into 2 groups
Current Assets
Liabilities & Equity
Non-current Assets
107. 107
The left side – the Liabilities & Equity we divide in 3 groups
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
108. 108
In Europe we have a little bit different order for the left side and the right side of the
balance sheet
Assets Equity & Liabilities
109. 109
Assets we order from the least liquid to the most liquid. Equity & Liabilities we
ordered by maturity period
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Equity
110. 110
In some cases we use different naming for the liabilities. Long-term instead of non-
current and short-term instead of current
Current Assets
Short-term liabilities
Non-current Assets
Long-term liabilities
Equity
111. 111
Also in some cases instead of Non-current asset you can have Fixed Assets
Current Assets
Current liabilities
Fixed Assets
Non-current liabilities
Equity
113. 113
Just as a reminder Non-current assets are a part of Assets. In USA you can find them
in the lower part of the Assets
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
114. 114
In Europe you can find them in the top part of the Assets
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Equity
115. 115
Let’s see what is included in non-current assets
Non-current Assets
Goodwill
Long-term receivables
& loans
Property, plant and
equipment net
Long-term
investments
Other non-current
assets
Deferred Income Tax
Intangible assets net
Tangible fixed assets
net
Intangible fixed assets
net
Deferred tax assets
117. 117
Just as a reminder current assets are a part of Assets. In USA you can find them in
the top part of the Assets
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
118. 118
In Europe you can find them in the lower part of the Assets
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Equity
119. 119
Let’s see what is included in non-current assets
Current Assets
Trade receivable
Other short-term
receivables & loans
Inventories
Other financial current
assets
Other non-financial
current assets
Prepayments
Cash and cash
equivalents
Income tax receivable
Inventory
Accounts receivable Receivables
121. 121
Before we move on to specific elements of Equity a few basic facts about Equity
Capital paid in by
Shareholders
Retained earnings
Shareholder pay in capital to get the
shares in the firm
They do it when they establish the firm
or when new shares are issued
A special case of issuing the shares is
going public – IPO. In this case you not
only issue new share but the shares can
be publicly traded
Quite a lot of firms at some point
generate profit
This profit can be shared with the
shareholders (Dividend) or it can be kept
in the firm as the company needs capital
to grow its business
This is decided by shareholders
You will find here the retained earnings
from previous years and the profit from
current year
123. 123
When you are issuing share you have to remember that they have 2 different prices
Selling price of
a share
Face value of a
share
50 1
124. 124
Due to the difference in the prices most firms will split in Equity the capital they
have gathered from shareholders into 2 parts
Capital gathered = # of shares x
Selling price of a
share
Capital gathered = # of shares x
Face value of a
share + # of shares x
Selling price – face
value a share
Capital gathered = Common Stock + Additional paid-in capital USA
Capital gathered = Share capital + Share premium Europe
125. 125
Let’s see what happens if we issue 1 000 common shares. With a face value 1 and
sales price of 50
Capital gathered = # of shares x
Selling price of a
share
Capital gathered = 1 000 x 1 + 1 0000 x (50-1)
Common Stock /
Share Capital = 1 000
Additional paid-in
capital / Share
premium
= 49 000
= 1 000 x 50 = 50 000
Capital gathered = # of shares x
Face value of a
share + # of shares x
Selling price – face
value a share
126. 126
Instead of face value we quite often have the term par value
Face value of a
share
Par value
128. 128
Just as a reminder Shareholder’s Equity is a part of Liabilities & Equity. In USA you
can find them in the lower part of Liabilities & Equity
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
129. 129
In Europe you can find them in the top part of the Equity & Liabilities
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Equity
130. 130
In USA you would have roughly the following division of Equity
Shareholders’ Equity
Common stock
Additional paid-in capital
Preferred stock
Accumulated other
comprehensive income loss
Retained earnings
Others
Treasury stock
131. 131
In Europe we would have a bit different structure of Equity
Equity
Share premium
Share capital
Retained earnings
Others
Treasury stock / share
132. 132
In Europe we would have a bit different structure of Equity
Equity
Share premium
Capital redemption reserve
Share capital
Employee Benefit Trust
shares
Retained earnings
Other i.e. reserves
Treasury stock / share
134. 134
Just as a reminder non-current liabilities is a part of Liabilities & Equity. In USA you
can find them in the middle part of Liabilities & Equity
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
135. 135
In Europe you can find them also in the middle part of the Equity & Liabilities
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Equity
136. 136
Below the most typical elements that are included in non-current liabilities
Non-current liabilities
Deferred Income taxes
Long-term Provisions
Long-term debt
Long-term Accruals
Employee liabilities
Bank loans and
borrowings
Deferred tax liabilities
Other non-current
liabilities
Other long-term
liabilities
138. 138
Just as a reminder current liabilities is a part of Liabilities & Equity. In USA you can
find them in the top part of Liabilities & Equity
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
139. 139
In Europe you can find them in the lower part of the Equity & Liabilities
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Equity
140. 140
Let’s have a look at how current liabilities are divided
Current liabilities
Accounts payable
Deferred income taxes
Short-term debt
Employee liabilities
Provisions
Accruals
Other current
liabilities
Deferred revenue
Bank loans and
borrowings
Trade and other
payables
Unearned revenue
Trade and other
liabilities
Accrued expenses and
other
Accrued and other
liabilities
Income tax payable Income tax liabilities
142. 142
Imagine that we would have to trace the changes in the balance sheet for
a ceramic tiles producer. Try to solve the exercises on your own
143. 143
The ceramic tiles producer is strong
in the Eastern Europe
Still, he is using the USA setup for
the balance sheet
Try to solve 10 exercises on your
own
Below a few information about ceramic tiles producer
144. 144
Below the exercies that you have to try and reflect in the balance sheet
Exercise 1
You bought Inventory for USD 2 M. You paid cash
Exercise 2
You decided to buy a new building. For that you took long-term loan. The building costs
USD 10 M.
Exercise 3
Your customer repaid old receivables worth USD 1 M
Exercise 4
You issued new shares and got cash thanks to that. You have issued common shares
worth USD 20 M
Exercise 5
You renegotiated with your suppliers that you can pay him later for the materials he is
supplying. This will help you increase the level of the materials you have at your factory
by 50%
145. 145
Below the exercies that you have to try and reflect in the balance sheet
Exercise 6
You have decided to pay out a dividend to your shareholder worth USD 2 M
Exercise 7
You renegotiated with the bank – part of your short-term debt (USD 2 M) was
transformed into a long-term debt
Exercise 8
Your customer repaid old receivables worth USD 1 M
Exercise 9
Due to change in value you decide to depreciate additionally your machines by USD 1
M
Exercise 10
You were unable to pay your long term debt so the bank agreed to convert it into
Equity. The amount was USD 5 M
146. 146
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148. 148
Accounting rules the firm uses hardly every are the same as the tax rules
Accounting rules Tax rules≠
Approach to Depreciation
Some costs are not treated as
costs by the Tax Law
Some revenues can be
recognized at different timing
149. 149
This difference leads to difference in Tax that has to be paid vs tax according to the
accounting rules. The Difference is shown as Deffered Income Taxes
Accounting rules Tax rules≠
Accounting Net Income Taxable Net Income≠
Tax according to Accounting Rules Tax according to Tax Rules≠
150. 150
If the Tax according to Accounting Rules is bigger than Tax according to Tax Rules
than we have a Deferred Income Tax in the Liabilities (Deferred Tax Liability)
Tax according to Accounting Rules Tax according to Tax Rules>
Deferred Tax Liability
151. 151
If the Tax according to Accounting Rules is smaller than Tax according to Tax Rules
than we have a Deferred Income Tax in the Assets (Deferred Tax Asset)
Tax according to Accounting Rules Tax according to Tax Rules<
Deferred Tax Asset
152. 152
Deferred income taxes are the result of the difference between your accounting
rules and the tax rules. They may appear both in Assets and in Liabilities
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
153. 153
If it appears in the Assets it means that the Tax was paid now but it refers to future
period from the point of view of our accounting policy (mainly due to different
approach to costs and revenues)
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
Deferred Income Tax
154. 154
It also means that in the future the firm will show less taxes in financial statement.
That is why we create an asset that will be used in the future
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
Deferred Income Tax
155. 155
Deferred Income Tax may appear as a part of Non-current Assets as well, if the tax
difference relates to longer than 1-year period
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
Deferred Income Tax
156. 156
If it appears in the Liabilities it means that the Tax was not paid. It will be paid in the
future
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
Deferred Income Tax
157. 157
In other words the Net Income we show in the books was impacted by it but we still
have to pay it so in other words we owe the cash to the government / state
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
Deferred Income Tax
159. 159
Accrual Accounting has impact both on costs as well as revenues
Costs Revenues
Revenue has to be recorded when it’s
earned
Revenue has to be recognized as revenue
for a specific month to which it is linked
The month in which you recognize the
revenue does not have to be the same as
the month in which you receive the money
You can get the money before the revenue
is recognized – you still have not delivered
the good / services (Unearned Revenue). A
good example are advanced payments
You can get the money after the revenue is
recognized (Accrued Revenue). You have
delivered the good but you still have not
got the money
Costs have to be recorded when they are
incurred
Costs have to be recognized as costs at a
specific month to which they are linked
The month in which you recognize the
costs does not have to be the same as the
month in which you pay for the cost
You can pay the money before the costs is
recognized (Prepayment / Prepaid
Expenses). You pay ahead of time for the
whole period of usage i.e. software
You can pay the money after the cost is
recognized (Accrued Expenses). You got
the materials from your supplier but you
still have not paid for them.
160. 160
Let’s see where we put those accruals in the Balance sheet
Assets Liabilities & Equity
Prepayment / Prepaid
Expenses
Accrued Expenses
Unearned RevenueAccrued Revenue
161. 161
We can also show the accruals in the following way
Money paid or received
BEFORE
Money paid or received
AFTER
Prepayment / Prepaid
Expenses
Accrued Expenses
Accrued RevenueUnearned Revenue
Costs
Revenue
162. 162
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165. 165
So far we have looked at asset and liabilities separately. However, quite often
analysts and manager are interested in the difference between certain type of
assets and liabilities
Current Assets
Current liabilities
Non-current Assets
Non-current liabilities
Shareholder’s Equity
166. 166
You can approach Working Capital in many ways. Below 2 most popular
ones
Working Capital Current Assets Current Liabilities-=
Working Capital Current Assets
Current Liabilities without
bank loans
-=
167. 167
There are quite a lot of reasons why it makes sense to calculate the working
capital
Provides a rough estimation of the
adjustments to EBITDA in CF
Gives you actionable tips
Gives you actionable tips
Helps you forecast the required cash
for growth
Helps you forecast the required cash
for growth
169. 169
Let’s imagine that you are supposed to calculate the working capital for a
ceramic tiles producer. We have some data on his sales and costs.
170. 170
A few information about the firm
They prduce 4 groups of
products
They need quite detailed
working capital
We have P&L data and balance
sheet from previous years
Use data to forecast how
working capital will change
171. 171
In the case study we will analyze 4 major groups of balance sheet
positions to calculate the Working Capital
Inventory
Working Capital
Materials
WIP
Goods
Finished Products
Receivables
Payments in advance
for deliveries
Trade receivables
Other receivables
Receivables resulting
from taxes, subsidies
Short term accruals
Liabilities
Trade liabilities
Prepayments for
deliveries
Liabilities resulting
from taxes, charges
Liabilities resulting
from salaries
Accruals
Cash and
equivalents
172. 172
We will draw data from other profit and loss sheets and on the basis of
the data we will calculate the working capital positions that in turn will be
fed into Balance and sheet as assets or liabilities
P&L
Sales
External
Services
Other
Working Capital
BS - Assets
BS - Liabilities
M&E
Assets
Liabilities
173. 173
When it comes to assets the problem is that they have 3 different
components that you have to track. On top of that every asset has to be
tracked separately
Turnover rotation in
days
Basis i.e. sales /
operating costs /
materials
Position of Working
capital i.e. inventory
/ receivables
=x 365÷
174. 174
Assumptions on working capital
WIP
Turnover rotation in days will go down by 5 days in 2018 due to better production
organization
Inventory of
finished
products
Turnover rotation in days will go down by 10 days in 2018 due to better production
organization
The rest of
positions
Will remain on the same level as in 2015
175. 175
Check the YoutTube movie for the solution to the case study
Click to go to the YouTube Movie
176. 176
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179. 179
As we said previously there are 3 financial statements that you have to look at when
analyzing the firm
Profit & Loss /
Income Statement
Balance Sheet Cash flow
180. 180
In this section we will discuss the Cash flow statement
Profit & Loss /
Income Statement
Balance Sheet Cash flow
181. 181
In this section we will discuss the following things
What is the purpose
of Cash Flow
statement
3 part of Cash Flow
Details on each and
every part of CF
Examples of real Cash
Flows
183. 183
There are 3 things we have to remember about P&L positions
Net Income Cash generated≠
Cost / Expense Cash outflow≠
Revenue Cash inflow≠
184. 184
We previously mentioned that to some extent an EBITDA is a simplified
estimator of the cash generated from Operations
EBITDA Cash generated from Operations≈
185. 185
That is why we need a separate place where we look at real cash generated
from all activities. That is why we need a Cash Flow statement
Cash outflow
Cash inflow
186. 186
There are number of things you want to achieve by creating and analyzing
Cash Flow (CF)
Estimate how much money was
generated
Understand what generates the
cash
Understand where the cash is
going / on what is spent
Forecast & plan cash requirements
CF is a great starting point for a
discussion with the Shareholders
CF is a great starting point for a
discussion about strategic decisions
188. 188
We want to see how the Cash Flow have altered the cash position during
the period. We divide the Cash Flows into 3 streams
Cash at the beginning of the period
CF from Financing Activities:
Cash at the end of the period
CF from Operating Activities:+
+
=
CF from Investing Activities:+
190. 190
Just as a reminder we divide the Cash Flows into 3 streams
Cash at the beginning of the period
CF from Financing Activities
Cash at the end of the period
CF from Operating Activities+
+
=
CF from Investing Activities+
191. 191
Let’s see how we calculate the Cash Flow from Operating Activities
Depreciation & Amortization
Changes in the working capital
Net Income
Other adjustments
Removing costs & revenues that are not related to
operational activities
Removing others costs & revenues that are not
cash based (similar to Depreciation)
CF from Operating Activities=
192. 192
Let’s see some examples of costs & revenues not related to the operational activities
Depreciation & Amortization
Changes in the working capital
Net Income
Other adjustments
Removing from costs & revenues that are not
related to operational activities
Removing from costs & revenues that are not cash
costs (similar to Depreciation)
CF from Operating Activities=
193. 193
Below some examples of costs & revenues not related to the operational activities
Gains on acquisitions and dispositions
Interest expenses net
194. 194
Let’s go back to the general overview of the CF from Operating Activities
Depreciation & Amortization
Changes in the working capital
Net Income
Other adjustments
Removing from costs & revenues that are not
related to operational activities
Removing from costs & revenues that are not cash
costs (similar to Depreciation)
CF from Operating Activities=
195. 195
Let’s see some examples of costs & revenues that are not cash costs
Depreciation & Amortization
Changes in the working capital
Net Income
Other adjustments
Removing from costs & revenues that are not
related to operational activities
Removing from costs & revenues that are not cash
costs (similar to Depreciation)
CF from Operating Activities=
197. 197
Let’s go back to the general overview of the CF from Operating Activities
Depreciation & Amortization
Changes in the working capital
Net Income
Other adjustments
Removing from costs & revenues that are not
related to operational activities
Removing from costs & revenues that are not cash
costs (similar to Depreciation)
CF from Operating Activities=
198. 198
The biggest changes in cash flow from operating activities is usually due to changes
in working capital
Depreciation & Amortization
Changes in the working capital
Net Income
Other adjustments
Removing from costs & revenues that are not
related to operational activities
Removing from costs & revenues that are not cash
costs (similar to Depreciation)
CF from Operating Activities=
199. 199
Below some examples of changes due to changes in the working capital
Changes in Inventories
Changes in Accounts Receivable
Changes in other Assets
Changes in Account Payables
Changes in other current liabilities, excluding
bank loans and borrowings
Changes in Prepayments and Accruals
201. 201
Just as a reminder we divide the Cash Flows into 3 streams
Cash at the beginning of the period
CF from Financing Activities
Cash at the end of the period
CF from Operating Activities+
+
=
CF from Investing Activities+
202. 202
Cash Flow from Investing Activities we would calculate using the following
elements
Proceeds from asset sales
Purchases of short-term investments
Capital expenditures / Investment in
non-current assets
Sales & maturities of short-term
investments
Other
Acquisitions, net of cash acquired
CF from Investing Activities=
204. 204
Just as a reminder we divide the Cash Flows into 3 streams
Cash at the beginning of the period
CF from Financing Activities:
Cash at the end of the period
CF from Operating Activities:+
+
=
CF from Investing Activities:+
205. 205
Cash Flow from financing activities consist of the following elements
Dividends to shareholders
Repayments of debt and other
Proceeds from issuance of shares
Other
Proceeds from debt and other
Repurchases of stock / Treasury stock
purchases
CF from Financing Activities=
Interest expense net
206. 206
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211. 211
There are plenty of profitability ratios used. Below the most popular ones
% Gross Margin
% Gross Profit
% EBIT
Return on Sales ROS
% Net Income
% EBITDA
ROE
ROA
212. 212
Let’s have a look at the definition of ratios and what they tell us
Gross Margin
% Gross Margin =
Net Sales
213. 213
Let’s have a look at the definition of ratios and what they tell us
Operating Income
EBIT% EBIT
Return on Sales - ROS
=
Net Sales
214. 214
Let’s have a look at the definition of ratios and what they tell us
Net Income
Net Profit% Net Income
Profit Margin
=
Net Sales
215. 215
Let’s have a look at the definition of ratios and what they tell us
EBITDA
% EBITDA =
Net Sales
216. 216
Let’s have a look at the definition of ratios and what they tell us
Net Income
ROA
(Return on Assets)
=
Assets
217. 217
Let’s have a look at the definition of ratios and what they tell us
Net Income
ROE
(Return on Equity)
=
Equity
219. 219
ROE can be decomposed into other ratios. Below one example
Net Income
ROE =
Assets
x
Assets
Equity
ROE = xROA Equity Multiplier
Net Income
Equity
=
Net Income
Equity
=
220. 220
ROE can be decomposed into other ratios. Below one example
Sales
=
Assets
x
Assets
Equity
Net Income
Sales
x
Net Income
Equity
ROE = xAsset Turnover Equity Multiplierx% Net Income
222. 222
There are plenty of liquidity ratios used. Below the most popular ones
Current Ratio (CR)
Quick Ratio (QR)
Cash Ratio (CshR)
Operating Cash Flow
Ratio
223. 223
Let’s have a look at the definition of ratios and what they tell us
Current Assets
Current Ratio (CR) =
Current Liabilities
224. 224
Let’s have a look at the definition of ratios and what they tell us
Current Assets
Quick Ratio (QR) =
Current Liabilities
-
Inventory &
Prepayments
225. 225
Let’s have a look at the definition of ratios and what they tell us
Cash & Cash
Equivalents
Cash Ratio (CshR) =
Current Liabilities
226. 226
Let’s have a look at the definition of ratios and what they tell us
Operating Cash Flow
Operating Cash Flow
Ratio
=
Total Debt
228. 228
There are plenty of activity / efficiency ratios used. Below the most
popular ones
Inventory conversion
period
Receivables
conversion period
Payables conversion
period
Cash Conversion
Cycle
Asset turnover
229. 229
Conversion periods have alternative names that are widely used
Inventory conversion
period
Receivables
conversion period
Payables conversion
period
Days Inventory
Outstanding (DIO)
Days Sales
Outstanding (DSO)
Days Payable
Outstanding (DPO)
=
=
=
230. 230
Let’s have a look at the definition of ratios and what they tell us
Inventory
Inventory conversion
period
=
COGS
x 365 days
231. 231
Let’s have a look at the definition of ratios and what they tell us
Receivables
Receivables
conversion period
=
Net Sales
x 365 days
232. 232
Let’s have a look at the definition of ratios and what they tell us
Account Payables
Payables conversion
period
=
COGS
x 365 days
233. 233
Cash Conversion Cycle (CCC) we calculate using previous ratios
Cash Conversion
Cycle (CCC)
= -
Receivables
conversion period
Payables
conversion period
+
Inventory
conversion period
Cash Conversion
Cycle (CCC)
= -
Days Sales
Outstanding (DSO)
Days Payable
Outstanding (DPO)
+
Days Inventory
Outstanding (DIO)
234. 234
Let’s have a look at the definition of ratios and what they tell us
Net Sales
Asset Turnover =
Assets
236. 236
There are plenty of debt ratios used. Below the most popular ones
Debt Ratio
Debt to Equity ratio
(D/E)
Net Debt-to-EBITDA
Ratio
237. 237
Debt Ratio can be defined in 2 ways
Debt
Debt Ratio =
Assets
Liabilities
Debt Ratio =
Assets
238. 238
Let’s have a look at the definition of ratios and what they tell us
Debt
Debt to Equity ratio
(D/E)
=
Equity
239. 239
Let’s have a look at the definition of ratios and what they tell us
Debt
Net Debt-to-EBITDA
Ratio
=
EBITDA
-
Cash & Cash
Equivalents
240. 240
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242. 242
In this section we will discuss the following things
Introduction to
Valuation
Introduction to DCF
methods
Difference between
FCFF and FCFE
Introduction to using
multipliers for
valuation
Case study
243. 243
We are going back to our example of ceramic tiles producer and we will
see what kind of methods we can use to estimate its valuation
244. 244
Just as a reminder a few information about the firm
They have 4 groups of products
We have DCF models
Use DCF and multiplier method
to estimate their value
246. 246
You can try to estimate the value of 2 different categories
Enterprise Value
Equity Value Net Debt Value
247. 247
For valuations you can use 2 groups of valuations methods
DCF methods
DCF of Free Cash Flows to
Firm (FCFF)
DCF of Free Cash Flows to
Equity (FCFE)
Multiplier methods
EV/EBIT
EV/EBITDA
P/E ratio
249. 249
In DCF model you use forecast of cash flows to estimate the
value of the company
Step 1 – Calculate the cash
flows
2018 2019 2020 2021 2022
𝐶𝐹2018 𝐶𝐹2019 𝐶𝐹2020 𝐶𝐹2021 𝐶𝐹2022
t+1
𝐶𝐹𝑡+1
𝐶𝐹2018
(1 + 𝑟)
𝐶𝐹2019
(1 + 𝑟)2
𝐶𝐹2020
(1 + 𝑟)3
𝐶𝐹2021
(1 + 𝑟)4
𝐶𝐹2022
(1 + 𝑟)5
𝐶𝐹𝑡+1
(1 + 𝑟) 𝑡+1
𝒊=𝟏
𝒕
𝑪𝑭𝒊
(𝟏 + 𝒓)𝒊
Step 2 – Calculate the
present value of CF
Step 3 – Calculate the
Valuation
𝑻𝒆𝒓𝒎𝒊𝒏𝒂𝒍 𝑽𝒂𝒍𝒖𝒆
(𝟏 + 𝒓) 𝒕+𝟏
Step 3 – Calculate the
Valuation
+
𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 =
𝐶𝐹𝑡+1
(𝑟 − 𝑔)
Step 3 – Calculate the
Valuation
Step 3 – Calculate
Terminal (Continuing)
Value
𝑇𝑒𝑟𝑚𝑖𝑛𝑎𝑙 𝑉𝑎𝑙𝑢𝑒 = 𝐸𝐵𝐼𝑇𝐷𝐴 𝑥 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟
250. 250
In the next lecture we will use 2 different methods for DCF
valuation
Free Cash Flows to Firm
(FCFF)
Free Cash Flows to Equity
(FCFE)
Cash flow before financial
activities
252. 252
In the next lecture we will use 2 different methods for DCF
valuation
Free Cash Flows to Equity
(FCFE)
DCF Cash Flow before
financial activities
As a discounting rate we use
Weighted Average Cost of
Capital (WACC)
The Terminal Value is
calculated using 3% growth
rate assumed after the
period of forecast
DCF Free Cash Flows to
Equity
As a discounting rate we use
cost of equity
The Terminal Value is
calculated using 3% growth
rate assumed after the
period of forecast
Free Cash Flows to Firm
(FCFF)
253. 253
FCFF and FCFE evaluate different things
Enterprise Value
Net Equity Value Net Debt Value
Cash flow before financial activities / Free Cash
Flows to Equity (FCFF) estimates the Enterprise
Value
Afterwards using the Net Debt Value you can
estimate Equity
Free Cash Flows to Equity (FCFF) estimates
Equity Value
255. 255
For simplicity often valuation is calculated using multipliers. Multipliers
also help you check the valuation from DCF which is subject to many
assumptions
EV/EBIT EV/EBITDA P/E ratio
256. 256
Using the Multiplier method of valuation is relatively easy
Find comparable
companies
Estimate the
multipliers for the
comparable.
Eliminate outliers
Estimate the EBIT,
EBITDA and net profit
for the company and
adjust them
Apply the multiplier Estimate Equity Value
257. 257
The methods we discussed estimate different values
Enterprise Value
Equity Value Net Debt Value
Using EV/EBITDA multiplier and EV/EBIT you can
estimate the Enterprise Value
Using P/E ratio you can estimate Equity Value
258. 258
Below how we can use the EV/EBIT multiplier to estimate the
Equity Value in 2 steps
EV/EBIT
multiplier
x =
EBIT of the
company
Enterprise Value of
the company
Enterprise Value of
the company
- =
Debt of the
company
Equity Value of the
company
259. 259
Using P/E ratio is even easier
P/E ratio x =
Net profit of the
company
Equity Value of the
company
261. 261
We are going back to our example of ceramic tiles producer and we will
see what kind of methods we can use to estimate its valuation
262. 262
Just as a reminder a few information about the firm
They have 4 groups of products
We have DCF models
Use DCF and multiplier method
to estimate their value
263. 263
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281. 281
5 examples of business /
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Practical guide how to check whether the business makes
sense
presentation
Check also my other presentations
283. 283
What is an issue tree and how
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Practical guide with examples
presentation
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284. 284
Excel shortcuts for Management
Consultants and Business
Analysts
Practical guide how to work fast in Excel
presentation
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285. 285
Financial Modeling for Business
Analysts and Management
Consultants
Step by step guide
presentation
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