Basic Accounting for Investment Banking

<p>Comparable Transactions (B)</p> Signup and view all the answers

<p>Businesses operating in the same industry as the target company and publicly traded on exchanges. (C)</p> Signup and view all the answers

<p>EV / Book Value of Equity (D)</p> Signup and view all the answers

<p>Discounted Cash Flow analysis (A)</p> Signup and view all the answers

<p>To determine a company's intrinsic value by discounting its future cash flows to their present value. (A)</p> Signup and view all the answers

<p>Enterprise Value (B)</p> Signup and view all the answers

<p>Cash (B)</p> Signup and view all the answers

<p>Comparable Transactions analysis relies on data from past acquisitions, while Comparable Public Companies analysis uses data from publicly traded companies. (D)</p> Signup and view all the answers

<p>Depreciation expense decreases net income and increases cash flow. (D)</p> Signup and view all the answers

<p>Increases liabilities and decreases assets. (C)</p> Signup and view all the answers

<p>To evaluate the financial feasibility of acquiring a company using a significant amount of debt. (C)</p> Signup and view all the answers

<p>Cash flow projections for the target company. (C)</p> Signup and view all the answers

<p>All of the above. (D)</p> Signup and view all the answers

<p>The business's current level of debt (C)</p> Signup and view all the answers

<p>The value of the business at a specific future date, considering the business is sold or continues operating (C)</p> Signup and view all the answers

<p>Decreases UFCF (B)</p> Signup and view all the answers

<p>To reflect the risk associated with future cash flows (A)</p> Signup and view all the answers

<p>Higher discount rate leads to lower business value (B)</p> Signup and view all the answers

<p>Net Income multiple (A)</p> Signup and view all the answers

<p>Increases WACC (B)</p> Signup and view all the answers

<p>Increases value (D)</p> Signup and view all the answers

<p>LBO focuses on the equity investor's return, while DCF considers both debt and equity investors (A)</p> Signup and view all the answers

<p>Increase in the sale price of the business at the exit (A)</p> Signup and view all the answers

<p>All of the above (D)</p> Signup and view all the answers

<p>Unlevered free cash flow considers only cash flows generated by the business, while free cash flow to equity includes cash flows after debt payments (D)</p> Signup and view all the answers

<p>To assess the impact of changing key assumptions on the business valuation (D)</p> Signup and view all the answers

<p>To account for the time value of money and potential risks (A)</p> Signup and view all the answers

<p>DCF focuses on financial statements, while comparable company analysis relies on market valuations (C)</p> Signup and view all the answers

<p>It increases the implied value because the equity investor can borrow more and therefore pay more while maintaining their investment amount. (C)</p> Signup and view all the answers

<p>The implied value decreases because the investor can't invest as much to realize the expected sale proceeds. (A)</p> Signup and view all the answers

<p>It's important to understand the specific logistics, timelines, and legal requirements of different transaction types. (C)</p> Signup and view all the answers

<p>Merging with another company (C)</p> Signup and view all the answers

<p>It increases your chances of securing an internship or job in a specific investment banking specialization. (D)</p> Signup and view all the answers

<p>To analyze the financial health of a company being considered for investment. (A)</p> Signup and view all the answers

<p>The amount of cash a business generates and its potential to generate cash in the future. (D)</p> Signup and view all the answers

<p>Balance Sheet (C)</p> Signup and view all the answers

<p>By adjusting net income for non-cash expenses and cash flows from investing and financing activities. (C)</p> Signup and view all the answers

<p>Cash flow from production activities (C)</p> Signup and view all the answers

<p>Increases assets by $10, no impact on liabilities or equity. (A)</p> Signup and view all the answers

<p>Increases expenses by $2, decreases net income by $0.4. (C)</p> Signup and view all the answers

<p>Analyzing the profitability of a company based solely on the Income Statement. (D)</p> Signup and view all the answers

The process of measuring and reporting financial health of businesses.

Investment bankers focus on cash generation and future cash expectations.

The key statements: Income Statement, Balance Sheet, Cash Flow Statement.

Reflects business performance based on accrual accounting - cash and non-cash revenues and expenses.

A snapshot of assets and liabilities, starting with cash from previous periods plus cash flow.

Bridges net income to actual cash flow, reflects cash movements from various activities.

When a business buys equipment, it affects all three financial statements over time.

Changing one item on a statement impacts the others; crucial for financial analysis.

Increasing debt for purchase raises business value for equity investors.

Higher return expectations can lower the implied business value citing reduced initial investment ability.

Covers logistics, timelines, and legalities involved in business transactions.

Investment banks categorize their work by transaction types; career focus is crucial.

Expect to be questioned by specialists in your targeted transaction type during interviews.

When a purchase is treated as an asset rather than an expense, showing no immediate change to the Income Statement (IS).

A non-cash expense representing the reduction in value of an asset over time, impacting the income statement.

Earnings Before Interest and Taxes, used to measure a firm's profitability.

Earnings Before Interest, Taxes, Depreciation, and Amortization; measures earnings without considering capital structure.

The total value of a company's operations, including equity and debt, but excluding cash.

Cash outflow related to the purchase of assets, affecting the cash flow statement.

The condition where assets equal liabilities plus shareholders' equity.

A valuation method that estimates the value of an investment based on its expected future cash flows.

An approach to valuation by comparing recent sales of similar businesses and their valuation ratios.

A method of valuation that compares a company with similar publicly traded firms to find average valuation ratios.

A transaction where a company is purchased with a significant amount of borrowed money to meet the cost of acquisition.

Effects on net income when tax obligations change due to deductions such as depreciation.

Financial metrics not defined by generally accepted accounting principles, often used for internal analysis.

The portion of net income that is retained in the business rather than distributed as dividends.

Cash generated by a business before paying investors and dividends.

The process of calculating the present value of future cash flows.

Average return required by both debt and equity investors.

Value of a business in perpetuity after the forecasted period.

A method to calculate terminal value based on constant growth.

Current worth of future cash flows discounted back.

Combining present values of cash flows and terminal value.

Predictions made about business and cash flow performance.

Examining how different assumptions affect business value.

Money owed to a business by customers.

Forecasts related to purchase price, debt, and returns.

How changes in accounts receivable affect business cash flow.

Analyzing DCF by changing inputs to see valuation ranges.

Interest expenses incurred on borrowed funds.