Investment Banking

Discussion questions_Lecture 3

Lecture 3:
1. Question on the sources of information to study the target company in Step 1 of the
Comparable company analysis:
Discuss the sources of information for the target company if it is:
a. a public company.
b. a private company.

2. Question on LTM (last twelve months) financial data:

If the current month is October 2010, explain LTM and how to calculate LTM financial
data in this case.

3. Question on growth rates and CAGR (Compound annual growth rate):

Suppose EPS 2012 = $1.4
EPS 2013 = $1.7
EPS 2014 = $2.1
a. Calculate the growth rate of EPS from 2012 to 2013.
b. Calculate CAGR (2012-2014).

4. Question on the adjustments for non-recurring items:

A company has a one-time pre-tax gain of $25 due to the sale of a non-core business.
Tax rate = 38%.
If the reported EBIT = $675 Then adjusted EBIT = ?
reported EBITDA = $850 adjusted EBITDA = ?
reported NI = $355.3 adjusted NI = ?

5. Question on implied valuation range:

a. Suppose the most appropriate trading multiple range obtained from best
comparable companies is as follows:
EV/EBITDA = 7 – 8x
If EBITDA (LTM) of the target company is $700, what’s the implied Enterprise value
(EV) range for the target company.
b. Using the implied EV calculated in part a, calculate the range of implied equity value
and implied share price, given the following values:
Total debt = $1,850
Cash and cash equivalents = $100
Company does not have preferred stock and non-controlling interest.
Fully diluted shares outstanding = 200 shares