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Also, why not include mandatory principal repayments in the interest line in the P&L? Are they not treated the same?

In real life, when AR goes up, it means the company has delivered a product/service to the customer, which almost always comes with associated COGS. So you would normally see at least a small increase in COGS. In this artificial example intended for interview questions, we do not walk through that scenario because this is intended to be used for a very simple interview question about AR. We do cover more real-world scenarios with added complexities in the courses and guides.

@@financialmodeling perfect Thanks!

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A positive Change in WC is always better from a cash flow perspective. There's a video on the Change in Working Capital if you search this channel or look in the accounting playlist.

There are some older videos in this channel on common accounting interview questions if you do a search. We may do more in the future.

Thanks. We will cover the other statements soon.

Total Return to Equity Investors = Exit Equity Proceeds - Equity Contribution = 1484 - 500 = 984.

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It's an interesting topic but not really a core focus of this channel or something we know much about. As someone working on deals or advising large companies, you need to understand high-level accounting but not the details down to that level. So our coverage focuses more on the main concepts rather than journal entries (can't imagine a banker ever asking about them in a standard interview).

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I think you may be over-thinking this and worrying about things that will never come up in an IB interview. These types of questions are much more common in PE interviews, to start with. Also, frankly, bankers have gotten dumber over time and are less likely to dig into these types of details (we find that many people at the Associate and VP levels now are fairly clueless). You could certainly ask for clarification on all these points, what "continuously" means, how much of a stake the PE firm retains, and in a real interview setting, you might do that. The goal here was to provide a quick/simple walkthrough of this question with certain assumptions in place.

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I am not really sure what your argument, question, or comment is. Refinancing is common in all real estate and other asset-level finance deals. Lenders know the risks they are taking going into the deal based on the LTV, coverage ratios, etc.

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NPV is only relevant for the IRR, not the multiple, so... kind of? Not really sure what you're asking or implying.

I don’t understand why do you care about multiply. You can have +IRR but -NPV and +multiply. Still you will be losing money.

Yes, the lease asset and liability may change at different rates under IFRS vs. U.S. GAAP. This is just how it works for a single lease. Over a huge portfolio of leases, these differences diminish. The 210 vs. 225 are arbitrary and don't correspond to any specific rule. Sometimes the Lease Assets and Liabilities do not equal each other exactly, and sometimes they do or are closer. But what really matters for all these calculations is the Lease Liability number, which is the same for both.

That is true, but even if you expand the set of banks here (not done in the interest of time), R^2 is still quite high (over 0.9). It's higher correlation than pretty much any other operational metric / valuation multiple pairing in any industry.

We tend not to do this because it over-complicates the analysis and doesn't change anything as long as you calculate R&D consistently for all companies in the set. Also, R&D in general is not a major expense for banks, insurance firms, and utility companies, which are the only 3 industries where ROE is important. If you do this, ROE will tend to increase because the R&D amortization in the numerator will be less than the normal annual expense (cash outflow), and the denominator will increase due to higher Equity to balance the R&D Asset on the other side - but usually it's a smaller increase, percentage-wise, than the numerator (but large variance by company/industry).

@@financialmodeling Alright. Thanks very much!

You can find the ERP data for other markets/regions by searching online (see Damodaran's data). Or just use the U.S. data and add a premium for the market you're in.

No. DTLs are created in deals worldwide because D&A on asset write-ups is not deductible in Stock Purchases (i.e., purchases for 100% of the company, including all assets and liabilities). There may be some exceptions in certain countries, but I don't think any large country does this differently.

This is just an example for this video. It's not based on a real company. In real life, we would have to look in the company's filings to get this value.

Yes, this is very true. I think SAFEs are actually worse for investors because of their ambiguity in the capital structure.

@@financialmodeling You put your money against the possibility to convert it in equity if certain events take place in the future (with no limit of time). In the meantime, you have no rights whatsoever, unless you negotiate side letters and the the simple becomes complex. As an investor, no thanks.

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Please see: mergersandinquisitions.com/breaking-into-wall-street-biws/

Not really sure how that relates, but sure, I guess. I think there are probably more specific metrics that a bank or insurance company would use for analyzing assets/liabilities.

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Yes, please see the previous videos in the channel.

It doesn't really make sense conceptually because Total Assets + Total Liabilities does not represent any specific concept or sum to any specific number.

@@financialmodeling the concept is: the lowest contrarian price you can get by multiply it by EPS.

There is some debate/disagreement about that, but most people would say WACC if you're valuing an NOL on the basis of future tax savings from it. It would normally be the buyer's WACC in an M&A deal.

@@financialmodeling why WACC? I’ve heard people say cost of equity, in between cost of equity and cost of debt, and even the RF rate, but never WACC. Interested to hear your perspective

@@bromaro NOLs benefit all investors, not just equity or debt investors, because their future usage increases cash flows and makes it easier to pay for interest/principal on a cash basis and issue dividends. But they are only useful if the core business continues to perform well, i.e., generate positive Taxable Income that NOLs can offset.

@@financialmodeling but even if the core business doesn’t do well, wouldn’t you still be able to sell it off (business shuts down) which would only benefit equity investors

@@bromaro If a company sells the entire company, the value of the NOLs will only benefit the shareholders because the lenders just get back their owed principal. But the key question is who benefits from the NOLs while the company is operating as it normally does. You don't normally look at a shutdown scenario to decide on the proper discount rate. And note that NOLs may actually be written down completely in some deals, depending on the structure (especially in asset sales).

Please follow the link in the pinned comment.

I do not understand your question. EBITDA / Debt is not a valuation multiple; Debt / EBITDA is the metric, and it's a credit stat, not a valuation multiple. But I'm really not sure what you mean by "simulate 50% equity and 50% debt" because EBITDA never reflects the debt/equity split, as it is capital structure-neutral.

Sorry, but we don't offer 1-on-1 help for company analysis in these CZcams comments. Happy to review Excel files, filings, or your own work and provide feedback if you have previously purchased a course or coaching service.

Yes, just use the beginning balances for fees and interest. Circular references are easy to avoid in standard company models with Debt that's based on a multiple of EBITDA.

I don't think SAFE Notes are that much cheaper than traditional equity rounds anymore if you use one of the many template/standardized agreements online. Yes, startups might still save money, but the disadvantages later on may not be worth it. There might be more savings if the priced equity round requires complex / drawn-out negotiation and the SAFE does not.

@@financialmodeling I can tell you from experience, much cheaper, basically because the limited involvement of lawyers. Even using templates, for an equity round you will need lawyers involved substantially in the process as you are modifying your legal corporate structure, SAFE don't do that, not at the time of the issuance, the real total cost of SAFEs is basically postponed to the time of conversion. The advantage is that at conversion time, against a larger financing it is easier to absorb the cost of legal fees. In other words, probably the final cost is quite similar, but the difference is the financial position at which the company must afford them.

The DTA already lists the total amount * the tax rate (roughly). So you don't multiply by the tax rate again. You can just use the amount in the DTA in the bridge directly. It should roughly equal the expected tax savings over time if you model it out, but won't always be the same due to expirations, tax rate changes, etc.

@@financialmodeling I understand, thank you. another question. when doing DCF valuation, what is the correct treatment for DTA and DTL shown in the balance sheet? or is DTA already included when we calculate NOLs? but how about DTL?

@@jesusalbertoperezdet3771 The DTA and DTL do not factor into the analysis directly, only the NOLs do. Either count the NOLs in the Cash Tax calculation directly in the DCF or include the total NOL balance as a bridge item when calculating Implied Equity Value at the end.

Yes, but you do the opposite and take the annual numbers and subtract the 9-month figures to get the Q4 numbers.

Probably not, especially since it's specific to certain regions and not a global rule.

Dividends reduce Equity Value, so yes. See the videos on Equity Value and Enterprise Value and how they change after specific events.

@@financialmodeling I Will see It. But i still have a doubt, if the company's B shareholder value gets vanished in the deal and only Company's A Equity stay after the acquisition, the equity value post acquisiton should only be Company's A Equity, because dividends affects only Company's B Equity that gets vanished anyway

@@flaviohns1 Company B no longer exists as a standalone entity, but its Equity Value does not exactly "disappear" - it simply becomes a part of the acquirer's Equity Value or Enterprise Value. For example, if the acquirer issues stock to do the deal, now its Equity Value increases to reflect the equity purchase price they just paid for Company B. Of course this may change if the market reacts negatively to the news and doesn't like the price, deal terms, etc., but this is the initial assumption.

@@financialmodeling So in this case Equity post Deal = Equity from Company A - Dividends issued by Company B + issued Stocks from Company A

Thanks!