Comps Flashcards
Comps Methodology
(1) Select a universe of comparable companies; (2) locate necessary financial information; (3) spread key stats, ratios, and trading multiples; (4) benchmark the comparable companies; (5) determine valuation
EV/EBITDA
enterprise value - to - earnings before interest, tax, depreciation, and amortization
P/E
price-to-earnings
Selecting a range of comps to use for valuation
More of an “art” than a “science.” Rely primarily on the multiples of the closest comps. Use the wider comps as reference points.
Warrants
A security typically issued in conjunction with a debt instrument that entitles the purchaser of that instrument to buy shares of the issuer’s common stock at a set price during a given time period. A sweetener for riskier debt issuances.
Fully Diluted Shares Outstanding
Basic shares + convertible securities + warrants + in-the-money options
Cash-Pay Convertible Bond
A straight debt instrument and an embedded equity call option that provides for the convert to be exchanged into a defined number of shares of I’s common stock under certain circumstances. Allows I to pay a lower coupon than a straight debt instrument.
Physical settlement
Requires I to settle conversions entirely in shares
Flexible settlement
I has choice to settle conversion by delivering any combination of cash and shares.
Net share settlement
Requires I to settle conversion value in cash up to principal amount being converted, with any excess of conversion value over principal amount settled in shares.
If-Converted Method
Number of diluted shares is calculated by adding an amount equal to the outstanding principal amount of the convert divided by the conversion price. Resulting convert is treated as equity. This “new” number of shares is added to the
Enterprise Value
The sum of all ownership interests in a company and claims on its assets from both debt and equity holders. I.e., equity value + total debt + preferred stock + noncontrolling interest – cash and cash equivalents
