The Income Statement

Question 1

Total Sales Revenue

Answer 1

Total amount of all products sold during the period

Question 2

Cost of Sales

Answer 2

Cost to produce those products

Question 3

Gross Profit

Answer 3

The difference between total revenue and the cost of sales

Question 4

Gross Margin

Answer 4

Gross Profit / Total Sales

Question 5

R & D

Answer 5

Research & Development

Question 6

S G & A

Answer 6

Selling, General & Administrative

expenses related to marketing, legal and corporate overhead, HR administration, investor relations, and other corporate overhead

Question 7

Stock-based Compensation

Answer 7

Fair market value of stock and option grants given to employees

Question 8

Depreciation & Amortization

Answer 8

Depreciation of property, plant, and equipment and intangible assets

Question 9

Operating Income

Answer 9

Gross profit less operating expenses

Question 10

EBIT

Answer 10

Earnings Before Interest & Taxes

Question 11

EBITA

Answer 11

EBITA is equal to earnings plus interest, taxes and amortization

Question 12

EBIT Margin

Answer 12

EBIT / Total Sales

Question 13

EPS

Answer 13

Earnings Per Share

Net Income / Average Shares Outstanding during the period

Question 14

Net Present Value

Answer 14

The NPV of a project is the sum of the present value of all cash flows associated with the project over its life.

Question 15

Why use the NPV method?

Answer 15

The NPV method can be used to determine whether a firm should undertake a project.

Question 16

Positive NPV, what is it?

Answer 16

NPV > 0

Will increase shareholder wealth therefore should be undertaken.

Question 17

Negative NPV, what is it?

Answer 17

Negative NPV will decrease shareholder wealth and should be rejected.

Question 18

What is the NPV formula?

Answer 18

see attachment

Question 19

Present Value (discounted cash flow)

Answer 19

Question 20

Present Value Definition

Answer 20

In economics and finance, present value, also known as present discounted value, is the value of an expected income stream determined as of the date of valuation.

Question 21

WACC

Answer 21

Weighted Average Cost of Capital

Question 22

WACC Formula Meaning

Answer 22

WACC is calculated by multiplying the cost of each capital source (debt and equity) by its relevant weight and then adding the products together. In the above formula, E/V represents the proportion of equity-based financing, while D/V represents the proportion of debt-based financing.

Question 23

WACC Formula

Answer 23

WACC	=	weighted average cost of capital
N	=	number of sources of capital (securities, types of liabilities)
r_i	=	required rate of return for security
i	=	security
MV_i	=	market value of all outstanding securities

Question 24

TEV

Answer 24

Total Enterprise Value

Question 25

Formula for TEV

Answer 25

TEV = Market Cap of Equity + Debt - Cash

Question 26

Describe TEV

Answer 26

TEV as the net cost to acquire the business (buying its equity, paying off its debt, but keeping any cash)

Question 27

Discounted Free Cash Flow Meaning

Answer 27

Valuing the EnterpriseIn finance, discounted cash flow analysis is a method of valuing a security, project, company, or asset using the concepts of the time value of money. Discounted cash flow analysis is widely used in investment finance, real estate development, corporate financial management and patent valuation.

Question 28

Discounted Free Cash Flow Formula

Answer 28

Question 29

Venture Capital: Pre-money value

Answer 29

Value of the pre-existing shares evaluated at the share price for the current funding round

Question 30

Venture Capital: Post Money Value

Answer 30

Value of the final number of shares at the conclusion of the funding round. Post money value = Pre-money value + The Amount Invested Amount invested / Post-money value = fraction of shares held by new investors

Question 31

Down Round

Answer 31

When the share price of the current investment round is below the share price of the prior round

Question 32

VC Hurdle Rates

Answer 32

The VC hurdle rate (i.e. the VC's required rate of return) is then calculated by dividing the required return on equity calculated using CAPM, for example, by the probability of success. So, if the CAPM return on equity is 15% and the probability of success is 30%, the VC hurdle rate is 50%.