Deck 1: Comparable Companies Analysis

Question 1

How should one adjust net income when using the If-Converted method for a comparable companies analysis?

A)Adjust net income downward
B)Adjust net income upward
C)Make no adjustment to net income
D)It depends

Answer 1

B

Question 2

Given the following information, calculate the dividend yield.
$\bullet$ Quarterly dividend: $0.50 per share
$\bullet$ Current share price: $20.00

A)10%
B)2.5%
C)5%
D)1%

Answer 2

10%

Question 3

Calculate the share dilution using the TSM method given the following information:
$\bullet$ 100.0mm basic shares outstanding
$\bullet$ Current share price of $10.00
$\bullet$ 10.0mm options outstanding with an exercise price of $20.00

A)110.0mm
B)150.0mm
C)100.0mm
D)220.0mm

Answer 3

100.0mm

Question 4

Which calculation measures the return generated by all capital provided to a company?

A)ROE
B)ROA
C)ROIC
D)ROI

Question 5

Which of the following is likely to be a non-recurring item on an income statement?

A)SG&A
B)Interest expense
C)Depreciation
D)Goodwill impairment

Question 6

Given the following information, what, by itself, would cause the enterprise value to equal $1,300.0mm?
$\bullet$ Equity Value: $1,400mm
$\bullet$ Cash: $200mm
$\bullet$ Total Debt: $300mm

A)A $100mm decrease in debt
B)A $100mm increase in cash
C)A $200mm increase in debt
D)A $200mm increase in cash

Question 7

Calculate the EBITDA margin given the following information.
$\bullet$ EBITDA: $200.0m
$\bullet$ COGS: $200.0m
$\bullet$ Sales: $1,000.0m
$\bullet$ Net income: $150.0m

A)20%
B)15%
C)40%
D)25%

Question 8

All of the following are reasons why EBITDA is an important metric when performing a comparable companies analysis EXCEPT: I.It represents a more accurate look at a company's operating cash flow
II)It is free from differences resulting from capital structure
III)It represents the profit after all of a company's expenses have been netted out
IV)It is free from differences in tax expenses

A)It represents a more accurate look at a company's operating cash flow
B)It is free from differences resulting from capital structure
C)It represents the profit after all of a company's expenses have been netted out
D)It is free from differences in tax expenses

Question 9

Which financial metric can help indicate a company's size?

A)ROIC
B)EV
C)DOL
D)FCF Yield

Question 10

A company's capital expenditures can be found on all of the following forms EXCEPT:

A)10-K
B)8-K
C)Proxy Statement
D)10-Q

Question 11

An 8-K or current report may be helpful for a comparable companies analysis as it contains which of the following?

A)Management discussion and analysis
B)Pro forma adjustments
C)Material corporate events or changes
D)A comprehensive company overview

Question 12

Given the following information, calculate the gross profit margin.
$\bullet$ Revenue: $200.0mm
$\bullet$ COGS: $100.0mm
$\bullet$ Operating Expenses: $50.0mm

A)40%
B)50%
C)25%
D)10%

Question 13

Calculate the debt-to-EBITDA ratio given the following information.
$\bullet$ EBIT: $100.0m
$\bullet$ D&A: $150.0m
$\bullet$ Cash: $50.0m
$\bullet$ Debt: $75.0m

A)25%
B)30%
C)50%
D)37.5%

Question 14

What is the difference between 2011 YTD revenues and LTM revenues? Revenues:
$\bullet$ Q1 2011: $200.0m
$\bullet$ Q2 2011: $150.0m
$\bullet$ Q3 2011: $220.0m
$\bullet$ Q4 2011: $175.0m
$\bullet$ Q1 2012: $250.0m
$\bullet$ Q2 2012: $175.0m

A)$75.0m
B)$50.0m
C)$175.0m
D)$100.0m

Question 15

What happens to the enterprise value EV) if a company issues equity and uses the proceeds to repay debt?

A)The EV goes up
B)The EV remains the same
C)The EV goes down
D)It depends

Question 16

Based on Moody's rating scale, what grade is Baa1 considered?

A)High quality
B)Highly speculative
C)Medium grade
D)Extremely speculative

Question 17

All of the following are reasons why comparable companies analysis should be used in conjunction with other valuation methodologies EXCEPT: I.Markets may be skewed due to investor sentiment
II)No two companies are the same
III)Valuation methods vary by sector
IV)Intrinsic valuation may be needed

A)Markets may be skewed due to investor sentiment
B)No two companies are the same
C)Valuation methods may vary by sector
D)Intrinsic valuation may be needed

Question 18

What is normalized net income given the following information? SHAPE \* MERGEFORMAT

A)$505
B)$550
C)$385
D)$275

Question 19

Calculate the compounded annual growth rate CAGR) if revenues grew from $50.0m in 2005 to $350.0m in 2012.

A)32%
B)24%
C)55%
D)18%

Question 20

What is the equity value of the company given the following information?
$\bullet$ Current share price: $40.00
$\bullet$ Basic shares outstanding: 400.0mm
$\bullet$ 50.0mm options outstanding with an exercise price of $20.00
$\bullet$ 5.0mm warrants with an exercise price of $45.00

A)$1,600.0mm
B)$1,500.0mm
C)$1,700.0mm
D)$1,625.0mm

Question 21

Which of the following is both a pro and a con of performing a comparable companies analysis?

A)It is quick to perform
B)It is current data
C)It is relative to other companies
D)It is market based

Question 22

What happens to enterprise value if a company raises $100.0m debt and holds it on its balance sheet as cash?

A)EV remains the same
B)EV increases by $100.0m
C)EV decreases by $100.0m
D)EV decreases by $200.0m

Question 23

Which of the following is NOT included in calculating a company's capitalization ratio?

A)Debt
B)Preferred stock
C)Equity
D)EBITDA

Question 24

Given the following information, calculate a company's EBITDA margin. Operating income: $250.0m
Sales: $800.0m
D&A: $50.0m
Gross profit: $500.0m

A)40.0%
B)37.5%
C)31.25%
D)68.75%

Question 25

What is a common multiple to use in a comparable companies analysis for a retail company?

A)EV / Subscribers
B)EV / Reserves
C)EV / Square footage
D)EV / Production

Question 26

Calculate COGS given the following information. Sales: $800.0m
SG&A: $250.0m
EBITDA: $300.0m
D&A: $50.0m

A)$250.0m
B)$200.0m
C)$500.0m
D)$300.0m

Question 27

What is EBITDA a proxy for?

A)Sales
B)Growth
C)Cash flow
D)Debt

Question 28

For what company would a valuation metric like EV / Sales be helpful?

A)A company with high gross margins
B)A company with no earnings
C)A company with low gross margins
D)A company with no debt