Temp Note

Risk in cashflow, interest rate, and counterparty

Valuation

• EBIT/ EBITDA
• EPS

Influence of shares outstanding$\to$ dilution effect (EPS goes down)

Cash generated: Probability of serving debt, cost.

CFO, CFI, CFF (Make sure understand how this works in GAAP and IFRS)

Depreciate/ Amortization will influence tax base (I/S for investor and for taxing).

Business Cycle

Account receivable (counterparty risk counted in price- required return)- Spread the cost to everybody$\to$ Adjust the cash flow by payment time$\to$Incentive to pay early (discount).

Account payable

Inventory

Depreciation and Amortization

• Mark to market and change the book value

Dividend Payment

$$NI-Div=RE$$

Company buying back their shares to increase the price and reduce dilution.

Study what compans do with their retained earnings

When interest rate are zero, company borrowing money to buy their shares back.

When interest rates are low, company borrow money to increase cash flow.

Registration statement of company (Form S-1)

Doing NLP for letter to shareholders

Margins

Gross margin: $\frac{\text{Gross Profit}}{\text{Sales}}$.

Long term margin of a company.

Operating margin: $\frac{\text{Operating income}}{\text{Sales}}$

EBIT margin: $\frac{\text{EBIT}}{\text{Sales}}$.

We want to understand the volume of sales and elasticity of their demand

Net profit margin: $\frac{\text{NI}}{\text{Sales}}$. Hedge in private debt

Liquidity

Current Ratios: $\frac{\text{Current Asset}}{\text{Current Liabilities}}$.

Quick ratio: current asset without inventory.

Cash Ratio: Only consider cash

Business cycle ratios

$$\text{Account Receivable Days}=\frac{\text{Account Receivable}}{\text{Average Daily Sales}}$$

Credit risk related to financing sales.

Inventory turnover:

$$\text{Inventory Turn Over}=\frac{\text{Annual Cost of Sales}}{\text{Inventory}}$$

Investment Decisions

Note

171 421 171 421 171 421 171 421 171 432

171 421