Investment Banking Lecture 3

Investment Banking Lecture 3 - FPN 1: INVESTMENT BANKING...

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Unformatted text preview: FPN 1: INVESTMENT BANKING Lecture 3 April 13 th 1 Questions? 2 The Book If youve bought it, email us the receipt to our gmail account: ucsdfpn@gmail.com 3 Authors Joshua Rosenbaum Joshua Pearl West Coast Tour Conference Call Email questions to ucsdfpn@gmail.com Put Question for Authors in the subject line Follow with your question(s) in the message 4 Oce Hours Lakshya Wednesdays: 12.30pm to 2.30pm Rady 3S119 Kamron Thursdays: 1.30pm to 3pm SEQ 139 Ross Mondays: 6.30pm to 8pm SEQ 139 5 Mentorship Program Deadline: April 20 th , 2011 (two weeks from today) Apply online at www.ucsdfpn.org 6 Total Debt Total Debt (in balance sheet data entry) It is the sum of short term debt and long term debt ST Debt is sometimes listed as ST Borrowings or Notes Payable ST Debt also includes Current Portion of LT Debt To keep it simple, use Google or Yahoo Finance Example: HP 7 Excel 8 Step III: Spread Size Profitability Growth Profile Return On Investment 1. Trading Comps 9 Step III: Spread Return On Investment Return on Invested Capital ( ROIC ) = EBIT Avg. Net Debt + Equity Return on Equity ( ROE ) = Net Income Avg. Shareholders Equity Return on Assets ( ROA ) = Net Income Avg. Total Assets Dividend Yield = (Most Recent Quarterly Dividend Per Share) X 4 Current Share Price 1. Trading Comps 10 Excel 11 Step III: Spread Size Profitability Growth Profile Return On Investment Credit Profile 1. Trading Comps 12 Step III: Spread Credit Profile Leverage : if Lev , Credit Profile Reveals info on a companys: Financial policy Risk profile Capacity for growth Ratios: Debt to EBITDA: Leverage = Debt EBITDA Debt to Total Capitalization: Leverage = Debt Debt + P. Stock + NCI + Equity 1. Trading Comps 13 Step III: Spread Credit Profile Coverage : If Cov , Credit Profile A companys ability to cover its interest expense obligations Interest Coverage Ratio = EBITDA or (EBITDA CapEx) or EBIT Interest Expense 1. Trading Comps 14 Excel 15 Last Twelve Months (LTM) Use 10-K, 10-Q o Prior Fiscal Year : Financial Data for the 4 consecutive quarters in the FY o Current Stub : YTD Financial Data for Current Year o Prior Stub : YTD Financial Data for Previous Year 1. Trading Comps 16 Excel 17 Calendarization Calendar Year (CY) = ending DEC 31 Fiscal Year (FY) = ending any quarter Calendarization is the process of converting all FY data of target and comparables to CY (if not ending Dec 31) 1. Trading Comps 18 Calendarization 1. Trading Comps 19 Adjusting Income Statements Add-back or elimination of one-time charges or gains to create a more indicative view of ongoing company performance Found in MD&A section or footnotes in 10-K Adjust for: Non-Recurring Items Recent Events 1. Trading Comps 20 NonRecurring Items Examples: o Restructuring Charges o Environmental effects / Disasters o Lawsuits...
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Investment Banking Lecture 3 - FPN 1: INVESTMENT BANKING...

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