Strategic Financial sponsors / private equity: buying businesses with significant debt to amplify return for investors and reduce initial equity investment...

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LBO models are typically built by private equity firms or for private equity (PE) firms trying to do a leveraged buyout; they involve 3 statements and are quite time consuming. DCFs are much more common for most non-PE companies, and most of a bank’s clients are non-PE. They typically involve fore...

No, unlevered free cash flows (UFCF) do not account for interest income or interest expense. Unlevered free cash flows are before the effects of debt. Therefore, there is no tax shield from interest. However, there is a tax shield from depreciation, since unlevered free cash flow does include deprec...

These parts take up time since typically, separate models and schedules are built for them. However, they have relatively less of an impact on the valuation output compared to revenue growth, EBITDA margin expansion, WACC, and terminal value.Also, for public companies, costs can be consolidated into...

Management will often make indications if they are going to be investing more heavily in capex than usual. This information and commentary can be found in earnings transcripts, annual reports, and the MD&A section of quarterly filings. Based on management guidance, we can either put in the capex...

I would ask what is causing the decline in revenue in 2nd and 4th year. In particular, I would try to figure out if this is a pricing or volume problem, and if it’s cyclical (ie driven by the economy) or non-cyclical. If it’s non-cyclical, I would try to evaluate if the revenue downfalls are [&h...

Intrinsic valuation is based on future cash flows, while relative valuation is based on the multiples that comparable companies are trading at or the multiples that previous acquisitions (precedent transactions) have occurred. Intrinsic valuation is driven more by assumptions while relative valuatio...

A DCF model is very useful for understanding a business’s finances inside and out, and seeing how certain changes in revenue growth, gross margins, etc. could effect the company’s enterprise value. Although a DCF can very rarely guess the exact price of a stock or value of a company, it can prov...

A decrease in net working capital would increase unlevered free cash flow. It represents less money being tied up in the daily operations of the business. For example, an increase in the number of days it takes us to pay our suppliers (also known as days payable outstanding) would free up cash....