Financial Statement Modeling & Valuation — Study Pack Flashcards

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EBITA

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EBITA equals operating income plus depreciation and is used to measure operating performance before interest and taxes. It helps private equity and analysts assess cash-generating ability without non-cash depreciation effects.

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Capitalisation

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Capitalisation records an expense as an asset on the balance sheet instead of expensing it immediately. This changes timing of expense recognition by spreading costs over multiple periods via depreciation or amortization.

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Capex

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Capex (capital expenditures) refers to cash spent to acquire or maintain long-term assets like property or equipment. It reduces cash but results in asset additions and future depreciation charges.

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Accounts Receivable

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Accounts receivable (AR) are amounts owed by customers for goods or services delivered. Increases in AR reduce operating cash flow because revenue is recognized before cash is collected.

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Accounts Payable

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Accounts payable (AP) are amounts a company owes its suppliers for purchases on credit. Increases in AP boost operating cash flow because expenses are recognized without immediate cash outflow.

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Deferred Revenue

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Deferred revenue is cash received for goods or services not yet delivered, recorded as a liability. It represents an obligation to provide future performance and is recognized as revenue over time.

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Net Cash Flow

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Net cash flow is the total change in cash from operating, investing, and financing activities within a period. It reflects the company's overall liquidity movement but not profitability directly.

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Free Cash Flow

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Free cash flow (FCF) is the cash a company generates after accounting for capex and is typically $FCF = Operating\ Cash\ Flow - Capex$. It indicates cash available for debt repayment, dividends, or reinvestment.

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Operating Cash Flow

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Operating cash flow measures cash generated from a company's core business activities. It adjusts net income for non-cash items and changes in working capital to show underlying cash generation.

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Retained Earnings

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Retained earnings are cumulative net income kept in the business after dividends are paid. They are part of shareholders' equity and increase with profitable operations or decrease with losses/dividends.

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Working Capital

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Working capital equals short-term assets minus short-term liabilities and includes AR, inventory, and AP. It represents liquidity for day-to-day operations and fluctuations impact operating cash flow.

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Net Debt

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Net debt is total debt minus cash and cash equivalents, providing a clearer view of indebtedness after available liquidity. Analysts use net debt to adjust enterprise value calculations and leverage metrics.

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Enterprise Value

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Enterprise value (EV) is the total value of a business including equity and net debt, often computed as $EV = Equity\ Value + Net\ Debt$. EV is used with EBITDA/EBIT multiples to compare firms irrespective of capital structure.

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EV/EBITDA

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EV/EBITDA is an enterprise multiple comparing company value to operating cash proxy EBITDA. It facilitates comparisons across firms by removing capital structure and non-cash depreciation differences.

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Accretion/Dilution

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Accretion/dilution analysis assesses how a merger or acquisition affects the acquirer's EPS. A deal is accretive if pro forma EPS increases, often influenced by purchase price, financing mix, and relative P/E ratios.

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Trading Comps

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Trading comparables value a company based on current market multiples of peer companies with similar operations. Proper peer selection and metric alignment are critical to avoid misleading conclusions.

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Transaction Comps

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Transaction comparables use multiples paid in prior M&A deals to estimate a target's value. These comps reflect control premiums and deal specifics, so adjustments for timing and deal context are necessary.

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Dilutive Securities

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Dilutive securities include options, warrants, and RSUs that can increase shares outstanding when exercised. In M&A and valuation, they must be considered to avoid understating potential share counts and EPS dilution.

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LBO

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A leveraged buyout (LBO) acquires a company primarily with borrowed funds, using the target's cash flows to service debt. LBO models stress capital structure, debt repayment schedules, and exit multiples to estimate sponsor returns.

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Distribution Waterfall

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The distribution waterfall defines the order in which investors and managers receive cash distributions in private equity. It prioritizes returning investor capital and any preferred return before allocating carried interest to managers.

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Financing Fees

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Financing fees are transaction-related costs paid for debt issuance and are often treated as contra-debt on the balance sheet. They are amortized over the life of the debt, affecting interest expense and retained earnings.