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Compacqs Valuation Flashcards

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1
Q

What is comparable companies analysis?

A

A methodology used for valuing a focus company, division, or collection of assets by providing a market benchmark.

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2
Q

What is the primary application of comparable companies analysis?

A

Used for mergers & acquisitions (M&A), initial public offerings (IPOs), restructurings, and investment decisions.

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3
Q

What is the premise behind trading comps?

A

Similar companies provide a relevant reference point for valuing a target due to shared business and financial characteristics.

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4
Q

What is the ‘comparables universe’?

A

A selected universe of comparable companies used for analysis.

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5
Q

What are trading multiples?

A

Valuation metrics calculated for the universe of comparable companies, serving as a basis for valuation.

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6
Q

List two commonly used trading multiples.

A
  • EV/EBITDA
  • P/E
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7
Q

Why are multiples based on enterprise value preferred by bankers?

A

They are independent of capital structure and unrelated factors.

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8
Q

True or False: Comparable companies analysis reflects current valuation based on prevailing market conditions.

A

True

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9
Q

What should be done if there is a material disconnect between valuation ranges from different methodologies?

A

Revisit key assumptions or calculations.

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10
Q

What is the first step in performing trading comps?

A

Select the Universe of Comparable Companies.

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11
Q

What sources are typically used to locate necessary financial information for comparable companies?

A
  • SEC filings
  • Consensus research estimates
  • Equity research reports
  • Press releases
  • Financial information services
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12
Q

What does the term ‘spreading’ refer to in trading comps?

A

Performing calculations in a spreadsheet program.

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13
Q

What is the purpose of benchmarking in comparable companies analysis?

A

To determine the target’s relative ranking and closest comparables.

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14
Q

What does the last twelve months (LTM) financial statistics refer to?

A

The sum of the prior four quarters of a company’s financial performance.

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15
Q

What is the final step in the comparable companies analysis?

A

Determine Valuation.

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16
Q

How are valuation ranges typically derived in comparable companies analysis?

A

By using means and medians of relevant trading multiples.

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17
Q

Fill in the blank: The Securities and Exchange Commission (SEC) regulates the U.S. _______.

A

[securities industry]

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18
Q

What is a key consideration when identifying comparable companies?

A

Understanding the target’s business and financial characteristics.

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19
Q

What should be done if certain outliers are identified among comparable companies?

A

Eliminate them or further tier the comparables.

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20
Q

What is a common method for calculating trading multiples?

A

Applying selected multiples to the target’s relevant financial statistics.

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21
Q

What are the implications of irrational investor sentiment on market trading levels?

A

It can skew valuations too high or too low.

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22
Q

What is the significance of selecting a universe of comparable companies?

A

It is the foundation for performing trading comps and helps identify companies with similar business and financial characteristics.

This process begins with a thorough understanding of the target company.

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23
Q

What are key sources of information for public companies when selecting comparables?

A

Annual (10-K) and quarterly (10-Q) SEC filings, consensus research estimates, equity and fixed income research reports, press releases, earnings call transcripts, investor presentations, and corporate websites.

These sources provide essential business and financial information.

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24
Q

What types of companies should be included in the universe of comparables?

A

Companies in the same sector or sub-sector with similar size and business characteristics.

If no direct comparables exist, companies outside the core sector with similar fundamental characteristics may be considered.

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25
What are the core business characteristics used to compare companies?
* Sector * Products and Services * Customers and End Markets * Distribution Channels * Geography ## Footnote These characteristics help determine commonality with other companies.
26
Define 'sector' in the context of comparable company analysis.
The industry or markets in which a company operates, such as chemicals, consumer products, healthcare, industrials, and technology.
27
What is the importance of understanding a company's products and services?
They are at the core of the business model and influence the selection of comparables. ## Footnote Similar products or services typically indicate good comparables.
28
What do 'customers' refer to in the context of a company's business?
The purchasers of a company's products and services.
29
What are 'end markets'?
The broad underlying markets into which a company sells its products and services, distinct from the customers themselves.
30
How do distribution channels affect company valuation?
They are key drivers of operating strategy, performance, and value, influencing organizational and cost structures.
31
What factors contribute to the differences in valuation for companies in different geographies?
Local demographics, economic drivers, regulatory regimes, consumer buying patterns, and cultural norms.
32
What is typically used to measure the size of a company?
Market valuation (equity value and enterprise value) and key financial statistics (sales, gross profit, EBITDA, EBIT, and net income).
33
What does a company's profitability measure?
Its ability to convert sales into profit, often expressed through profitability ratios (margins).
34
What is the growth profile of a company?
A measure of its historical and estimated future financial performance, impacting valuation.
35
Define 'return on investment' (ROI).
A measure of a company's ability to provide earnings to its capital providers, often expressed through metrics like ROIC, ROE, and ROA.
36
What does a company's credit profile indicate?
Its creditworthiness as a borrower, measured by debt levels and interest payment capabilities.
37
Fill in the blank: A company's _______ refers to the industry or markets in which it operates.
sector
38
True or False: Companies with a similar customer base tend to share similar opportunities and risks.
True
39
Fill in the blank: Companies that produce similar products or provide similar services typically serve as good _______.
comparables
40
What does ROI stand for?
Return on Investment ## Footnote ROI is a financial metric used to evaluate the profitability of an investment.
41
List the most commonly used ROI metrics.
* Return on Invested Capital (ROIC) * Return on Equity (ROE) * Return on Assets (ROA) * Dividend Yield
42
What is a company's credit profile?
It refers to its creditworthiness as a borrower, measured by debt level and ability to make interest payments.
43
Which agencies provide formal assessments of a company's credit profile?
* Moody's Investors Service * Standard & Poor's (S&P) * Fitch Ratings
44
What is the purpose of screening for comparable companies?
To identify companies with a similar business profile for financial benchmarking.
45
What types of financial information should be assessed early on when screening for comparables?
* Sales * Enterprise Value * Equity Value
46
What is a fairness opinion in the context of M&A?
It opines on the fairness of the purchase price and deal terms offered by the acquirer.
47
Which codes can be used to screen for companies in the target's sector?
* Standard Industrial Classification (SIC) * North American Industry Classification System (NAICS)
48
What is the primary source of public company financial data?
SEC filings, such as 10-Ks, 10-Qs, and 8-Ks.
49
What does the 10-K report include?
* Comprehensive overview of the company * Management discussion & analysis (MD&A) * Audited financial statements
50
How does the 10-Q report differ from the 10-K?
It is less comprehensive and provides financial statements for the most recent quarter and year-to-date periods.
51
What is the purpose of the 8-K report?
To report the occurrence of material corporate events that are important to shareholders.
52
What information can be found in a proxy statement?
* Basic shares outstanding * Material information for shareholder votes * Suggested peer group for benchmarking
53
What do equity research reports provide?
Analyst estimates of future company performance, including sales, EBITDA, and EPS.
54
What are consensus estimates used for?
To calculate forward-looking trading multiples in trading comps.
55
What is typically included in a company's press release?
* Earnings announcements * Declaration of dividends * Management changes
56
What do financial information services provide?
* SEC filings * Research reports * Consensus estimates * Press releases
57
What is required to access credit ratings from agencies like Moody's and S&P?
A subscription.
58
Fill in the blank: The 10-K must be filed within _____ days after the end of a company's fiscal year.
60 to 90
59
True or False: The financial statements in a 10-Q are audited.
False
60
What is the deadline for filing the 8-K report after a triggering event?
Typically within four business days.
61
What do the terms 'LTM' and 'EBIT' refer to?
'LTM' stands for Last Twelve Months, and 'EBIT' stands for Earnings Before Interest and Taxes.
62
What does EBITDA stand for?
Earnings Before Interest, Taxes, Depreciation, and Amortization ## Footnote EBITDA is a non-GAAP financial measure and is not reported on a public filer's income statement.
63
What are the components of an income statement?
* Sales * Gross Profit * EBITDA * EBIT * Net Income / EPS ## Footnote These components are typically found in the most recent 10-K, 10-Q, or 8-K filings.
64
Which financial statements provide cash balance and debt balances?
Balance Sheet ## Footnote This information is available in the most recent 10-K, 10-Q, or 8-K filings.
65
What is EBITDAial?
Earnings Before Interest, Taxes, Depreciation, Amortization, Interest, and Lease payments ## Footnote This term appears to be a typographical error or variant of EBITDA.
66
What data is typically included in cash flow statements?
* Depreciation & Amortization * Capital Expenditures ## Footnote This data can be found in the most recent 10-K, 10-Q, or 8-K filings.
67
What information is included in share data?
* Basic Shares Outstanding * Options and Warrants Data ## Footnote This information is available in the most recent 10-K, 10-Q, or Proxy Statement.
68
What does the term 'credit ratings' refer to?
Assessments of the creditworthiness of a company or government ## Footnote This information can be obtained from financial information services and rating agencies' websites, including Bloomberg.
69
What is the purpose of the sample input page in financial modeling?
To assist the banker in calculating key financial statistics, ratios, and multiples for the comparables universe ## Footnote The input page data feeds into output sheets for benchmarking comparables.
70
What color is typically used for manual input cells in financial models?
Blue font ## Footnote Formula cells (calculations) are typically in black font.
71
What is the significance of calendarizing company financials?
To adjust financial data to a common time frame for comparison ## Footnote This process is part of preparing financial statistics and ratios.
72
True or False: EBITDA is reported on a public filer's income statement.
False ## Footnote EBITDA may be disclosed as supplemental information but is not included in the income statement.
73
What is the process to adjust for non-recurring items?
To ensure financial data accurately reflects ongoing operations ## Footnote This adjustment is part of calculating LTM financial statistics.
74
Fill in the blank: The most recent 10-K, 10-Q, or 8-K filings provide information on ______.
Sales, Gross Profit, EBITDA, EBIT, Net Income / EPS ## Footnote These filings contain comprehensive financial data for analysis.

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